Professional Documents
Culture Documents
Chapter 9
9-1
Learning Objective 1
Prepare consolidated statements
when the parent company
controls through indirect holdings.
9-2
Affiliation Structures
The potential complexity of corporate
affiliation structure is limited only
by ones imagination .
9-3
Direct Holdings
Parent
80%
Subsidiary
A
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
9-4
Direct Holdings
Parent
80%
70%
90%
Subsidiary
A
Subsidiary
B
Subsidiary
C
9-5
Indirect Holdings
Parent
80%
Subsidiary
A
70%
Subsidiary
B
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
9-6
Indirect Holdings
Parent
80%
20%
Subsidiary
A
Subsidiary
B
40%
9-7
Mutual Holdings
Parent
80%
10%
Subsidiary
A
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
9-8
Mutual Holdings
Parent
80%
Subsidiary
A
20%
40%
20%
Subsidiary
B
9-9
Father-Son-Grandson Structure
Poe Corporation acquires 80% of the stock
of Shaw Corporation on January 1, 2003.
Shaw acquires 70% of the stock of Turk
Corporation on January 1, 2004.
Both investments are made at book value.
9 - 10
Father-Son-Grandson Structure
(in thousands)
Poe
Other assets
$400
Investment in Shaw: (80%) 200
Investment in Turk: (70%)
$600
Liabilities
$100
Capital stock
400
Retained earnings
100
$600
Separate earnings
$100
Dividends
$ 60
Shaw
Turk
$195
105
$300
$ 50
200
50
$300
$ 50
$ 30
$190
$190
$ 40
100
50
$190
$ 40
$ 20
9 - 11
9 - 12
$190,000
27,600
$162,400
9 - 13
Poe
$100.0
Shaw
$ 50.0
Turk
$ 40.0
+ 28.0
28.0
62.4
$ 15.6
$ 12.0
+ 62.4
$162.4
9 - 14
Indirect Holdings
Connecting Affiliates Structure
Pet
70%
Sal
60%
20%
Ty
9 - 15
Cost
Less: Book value
Goodwill
Investment Balance 12/31/09
Cost
Add: Share of investees pre-2008
income less dividends
Balance 12/31/07
$178
168
$ 10
$100
90
$ 10
$20
20
$178
$100
$20
7
$185
18
$118
16
$36
9 - 16
9 - 17
Pet
Sal
Ty
$70.0
10.0
$60.0
$35.0
5.0
$30.0
$20.0
$20.0
+12.0
+ 4.0
4.0
12.0
+23.8
$95.8
23.8
$10.2
$ 4.0
9 - 18
9 - 19
$27,300
3,500
10,000
$13,800
9 - 20
9 - 21
Balance 12/31/2007
Add: Investment income
Deduct: Dividends
Balance 12/31/2008
Investment
Investment
in Sal (70%) in Ty (60%)
$185,000
13,800
14,000
$183,800
$118,000
12,000
6,000
$124,000
9 - 22
Learning Objective 2
Apply consolidated procedures of
indirect holdings to the special
case of mutual holdings.
9 - 23
10%
Salt
9 - 24
Conventional Approach
9 - 25
9 - 26
Pace
Salt
$480,000
$480,000
270,000
270,000
70,000
70,000
$820,000
$820,000
$260,000
$260,000
70,000
70,000
50,000
50,000
$380,000
$380,000
$500,000
$500,000
200,000
200,000
120,000
120,000
$820,000
$820,000
$200,000
$200,000
100,000
100,000
80,000
80,000
$380,000
$380,000
9 - 27
Treasury Approach:
Working Papers December 31,
Adjustments/ Consol2005
Income Statement
Pace Salt Eliminations idated
Sales
Investment income
Expenses
Minority interest expense
Net income
Retained earnings Pace
Retained earnings Salt
Add: Net income
Retained earnings
December 31, 2005
$120 $ 80
27
a 27
(70) (50)
d 3
$ 77 $ 30
$200
$100 b 100
77
30
$200
$277
$277
$130
(120)
(3)
$ 77
$200
77
9 - 28
Treasury Approach:
Working Papers December 31,
Adjustments/ ConsolBalance Sheet
Pace
2005Salt Eliminations idated
Other assets
Investment in Salt (90%)
$480
297
$777
$500
277
$777
$260
70
$330
$200 b 200
130
$330
c 70
a 27
b 270
c 70
$740
$740
$500
277
b 30
d 3
(70)
33
$740
9 - 29
Treasury Approach:
Working Papers December 31,
Adjustments/ Consol2006
Income Statement
Pace Salt Eliminations idated
Sales
Income from Salt
Dividend income
Expenses
Minority interest expense
Net income
Retained earnings Pace
Retained earnings Salt
Dividends
Add: Net income
Retained earnings
December 31, 2006
$140 $100
35.7
3
(80) (60)
a 35.7
a 3
d
43
$345.7 $153
(140)
(4.3)
$ 95.7
$277
4.3
$ 95.7 $ 43
$277
$130 b 130
(27)
(20)
95.7
$240
a 18
d 2
(27)
95.7
$345.7
9 - 30
Treasury Approach:
Working Papers December 31,
Adjustments/ ConsolBalance Sheet
Pace
2006Salt Eliminations idated
Other assets
$528
$283
Investment in Salt (90%) 317.7
Investment in Pace (10%)
Capital stock Pace
Capital stock Salt
Retained earnings
Treasury stock
Minority interest
70
$845.7 $353
$500
$200 b 200
345.7 153
$845.7 $353
c 70
a 20.7
b 297
c 70
$811
$811
$500
345.7
b 33
d 2.3
(70)
35.3
$811
9 - 31
Conventional Approach
It accounts for the subsidiary investment in
parent company stock on an equity basis.
Parent company stock held by a subsidiary
is constructively retired.
Capital stock and retained earnings applicable to
the interest held by the subsidiary do not appear
in the consolidated financial statements.
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
9 - 32
Conventional Approach
January 1, 2005
Capital stock
Retained earnings
Stockholders equity
Pace
Consolidated
$500,000
200,000
$700,000
$450,000
180,000
$630,000
9 - 33
Conventional Approach
January 1, 2005
Investment in Salt
270,000
Cash
270,000
To record acquisition of a 90% interest in Salt at book value
January 5, 2005
Capital Stock, $10 par
50,000
Retained Earnings
20,000
Investment in Salt
70,000
To record the constructive retirement of 10% of Paces
outstanding stock
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
9 - 34
9 - 35
9 - 36
P
Before allocation: $50,000
After allocation: $84,615
S
$30,000
$38,462
Total
$ 80,000
$123,077
9 - 37
9 - 38
26,154
26,154
9 - 39
Conventional Approach:
Working Papers December 31,
Adjustments/ Consol2005Salt Eliminations idated
Income Statement
Pace
Sales
Investment income
Expenses
Minority interest
expense
Net income
Retained earnings P
Retained earnings S
Add: Net income
Retained earnings
December 31, 2005
$120,000 $ 80,000
26,154
b 26,154
(70,000) (50,000)
d
$ 76,154
$180,000
76,154
$256,154
(120,000)
(3,846)
3,846
$ 30,000
$100,000 c 100,000
30,000
$130,000
$200,000
$ 76,154
$180,000
76,154
$256,154
9 - 40
Conventional Approach:
Working Papers December 31,
Adjustments/
ConsolBalance Sheet
Pace 2005
Salt
Eliminations
idated
Other assets
Investment in S
$480,000 $260,000
226,154
a 70,000 b 26,154
c 270,000
Investment in P
70,000
a 70,000
$756,154 $330,000
Capital stock P $450,000
Capital stock S
$200,000 c 200,000
Retained earnings 256,154 130,000
Minority interest
$706,154 $330,000
b 30,000
d 3,846
$740,000
$740,000
$450,000
256,154
33,846
$740,000
9 - 41
$ 50,000
+ 60,000
30,000
+ 18,000
$ 98,000
$ 30,000
+ 40,000
20,000
+ 3,000
$ 53,000
Total
$ 80,000
+ 100,000
50,000
+ 21,000
$ 151,000
9 - 42
S = $53,000 + 0.1P
9 - 43
9 - 44
10%
Uno
9 - 45
9 - 46
9 - 47
Poly
$ 64
200
500
336
$1,100
$ 200
500
400
$1,100
Seth
$ 40
85
240
135
$500
$100
200
200
$500
Uno
$ 20
80
110
40
$250
$ 70
100
80
$250
9 - 48
Cost
Add: Income less
dividends (2005)
Add: Income less
dividends (2006)
Balance 12/31/2006
Poly 80%
in Seth
$260,000
32,000
48,000
$340,000
21,000
$136,000
$40,000
9 - 49
End of Chapter 9
9 - 50