Download CHAPTER 8 INTERCOMPANY INDEBTEDNESS

Survey
yes no Was this document useful for you?
   Thank you for your participation!

* Your assessment is very important for improving the work of artificial intelligence, which forms the content of this project

Transcript
Chapter 08 - Intercompany Indebtedness
CHAPTER 8
INTERCOMPANY INDEBTEDNESS
ANSWERS TO QUESTIONS
Q8-1 A gain or loss on bond retirement is reported by the consolidated entity whenever (a) one
of the companies purchases its own bonds from a nonaffiliate at an amount other than book
value, or (b) a company within the consolidated entity purchases the bonds of an affiliate from a
nonaffiliate at an amount other than book value.
Q8-2 A constructive retirement occurs when the bonds of a company included in the
consolidated entity are purchased by another company included within the consolidated entity.
Although the debtor still considers the bonds as outstanding, and the investor views the bonds
as an investment, they are constructively retired for consolidation purposes. If bonds are
actually retired, the debtor purchases its own bonds from a nonaffiliate and they are no longer
outstanding.
Q8-3 When bonds sold to an affiliate at par value are not eliminated, bonds payable and bond
investment are misstated in the balance sheet accounts and interest income and interest
expense are misstated in the income statement accounts. There is also a premium or discount
account to be eliminated when the bonds are not issued at par value. Unless interest is paid at
year-end, there is likely to be some amount of interest receivable and interest payable to be
eliminated as well.
Q8-4 Both the bond investment and interest income reported by the purchaser will be
improperly included. Interest expense, bonds payable, and any premium or discount recorded
on the books of the debtor also will be improperly included. In addition, the constructive gain or
loss on bond retirement will be omitted if no eliminating entries are recorded in connection with
the purchase.
Q8-5 If the focus is placed on the legal entity, only bonds actually reacquired by the debtor will
be treated as retired. This treatment can lead to incorrect reports for the consolidated entity in
two dimensions. If a company were to repurchase bonds from an affiliate, any retirement gain or
loss reported by the debtor is not a gain or loss to the economic entity and must be eliminated in
preparing consolidated statements. Moreover, although a purchase of debt of any of the other
companies in the consolidated entity will not be recognized as a retirement by the debtor, when
emphasis is placed on the economic entity the purchase must serve as a basis for recognition of
a bond retirement for the consolidated entity.
Q8-6 The difference in treatment is due to the effect of the transactions on the consolidated
entity. In the case of land sold to another affiliate, a gain has been recorded that is not a gain
from the viewpoint of the consolidated entity. Thus, it must be eliminated in the consolidation
process. On the other hand, in a bond repurchase the buyer simply records an investment in
bonds and the debtor makes no special entries because of the purchase by an affiliate. Neither
company records the effect of the transaction on the economic entity. Thus, in the consolidation
process an entry must be made to show the gain on bond retirement that has occurred from the
viewpoint of the economic entity.
8-1
Chapter 08 - Intercompany Indebtedness
Q8-7 When there has been a direct sale to an affiliate, the interest income recorded by the
purchaser should equal the interest expense recorded by the seller and the two items should
have no net effect on reported income. The eliminating entries do not change consolidated net
income in this case, but they will result in a more appropriate statement of the relevant income
and expense categories in the consolidated income statement.
Q8-8 Whenever a loss on bond retirement has been reported in a prior period, the affiliate that
purchased the bonds paid more than the book value of the debt shown by the debtor. As a
result, each period the interest income recorded by the buyer will be less than the interest
expense reported by the debtor. When the two income statement accounts are eliminated in the
consolidation process, the effect will be to increase consolidated net income. Because the full
amount of the loss was recognized for consolidated purposes in the year in which the bonds
were purchased by the affiliate, the effect of the elimination process in each of the periods that
follow should be to increase consolidated income.
Q8-9 The difference between the carrying value of the debt on the debtor's books and the
carrying value of the investment on the purchaser's books indicates the amount of unrecognized
gain or loss at the end of the period. To determine the amount of the gain or loss on retirement
at the start of the period, the difference between interest income recorded by the purchaser on
the bond that has been purchased and interest expense recorded by the debtor during the
period is added to the difference between carrying values at the end of the period.
Q8-10 Interest income and interest expense must be eliminated and a loss on bond retirement
established in the elimination process. Consolidated net income will decrease by the amount of
the loss. Because the loss is attributed to the subsidiary, income assigned to the controlling and
noncontrolling interests will decrease in proportion to their share of common stock held.
Q8-11 A constructive gain will be included in the consolidated income statement in this case
and both consolidated net income and income to the controlling interest will increase by the full
amount of the gain.
Q8-12 A direct placement of subsidiary bonds with the parent should have no effect on
consolidated income or on income assigned to the noncontrolling shareholders.
Q8-13 When subsidiary bonds are purchased from a nonaffiliate by the parent and there is a
constructive gain or loss for consolidated purposes, the gain or loss is assigned to the
subsidiary and included in computing income to the noncontrolling shareholders.
Q8-14 Interest income recorded by the subsidiary and interest expense recorded by the parent
should be equal in the direct placement case. When the subsidiary purchases parent company
bonds from a nonaffiliate, interest income and interest expense will not be the same unless the
bonds are purchased from the nonaffiliate at an amount equal to the liability reported by the
parent.
Q8-15 A gain on constructive bond retirement recorded in a prior period means the bonds were
purchased for less than book value and the interest income recorded by the subsidiary each
period will be greater than the interest expense recorded by the parent. Consolidated net
income for the current period will decrease by the difference between interest income and
interest expense as these amounts are eliminated in preparing the consolidated statements.
Income to the noncontrolling interest will be unaffected since the constructive gain is assigned
to parent company.
8-2
Chapter 08 - Intercompany Indebtedness
Q8-16 A constructive loss recorded on the subsidiary's bonds in a prior period means the
interest income recorded by the parent is less than the interest expense recorded by the
subsidiary in each of the following periods. Consolidated net income will increase when interest
income and expense are eliminated. Income assigned to the noncontrolling interest will be
based on the reported net income of the subsidiary plus the difference between interest income
and interest expense each period following the retirement. As a result, the amount assigned will
be greater than if the bond had not been constructively retired.
Q8-17 On the date the parent sells the bonds to a nonaffiliate they are issued for the first time
from a consolidated perspective. While the parent will record a gain or loss on sale of the bonds
on its books, none is recognized from a consolidated viewpoint. The difference between the sale
price received by the parent and par value is a premium or discount. Each period there will be a
need to establish the correct amount for the premium or discount account and to adjust interest
expense recorded by the subsidiary to bring the reported amounts into conformity with the sale
price to the nonaffiliate.
Q8-18 The retirement gain or loss reported by the subsidiary when it repurchases the bonds
held by the parent must be eliminated in the consolidation process. From the viewpoint of the
consolidated entity the bonds were retired at the point they were purchased by the parent and a
gain or loss should have been recognized at that point.
8-3
Chapter 08 - Intercompany Indebtedness
SOLUTIONS TO CASES
C8-1 Recognition of Retirement Gains and Losses
a. When Flood purchases the bonds it establishes an investment account on its books and
Bradley establishes a bond liability and discount account on its books. No entry is made by
Century. When Century purchases the bonds, Century records an investment and Flood
removes the balance in the investment account and records a gain on the sale. Bradley makes
no entry. When Bradley retires the issue, Bradley removes its liability and unamortized discount
and records a loss on bond retirement. Century removes the bond investment account and
records a loss on the sale of bonds. Flood makes no entry.
b. A constructive loss on bond retirement is reported by the consolidated entity at the time
Century purchases the bonds from Flood. The exact amount of the loss cannot be ascertained
without knowing the maturity date of the bonds, the date of initial sale, and the date of purchase
by Century.
c. The initial sale of bonds by Bradley is treated as a normal transaction with no need for an
adjustment to income assigned to the noncontrolling shareholders. Income assigned to
noncontrolling shareholders will be reduced by a proportionate share of the loss reported in the
consolidated income statement in the period in which Century purchases the bonds from Flood.
In the years before the bonds are retired by Bradley, income assigned to the noncontrolling
interest (assuming no differential) will be greater than a pro rata portion of the reported net
income of Bradley. In the period in which the bonds are retired by Bradley, reported net income
of Bradley must be adjusted to remove its loss on bond retirement before assigning income to
the noncontrolling interest. No adjustment is made in the years following the repurchase by
Bradley.
8-4
Chapter 08 - Intercompany Indebtedness
C8-2 Borrowing by Variable Interest Entities
MEMO
To:
President
Hydro Corporation
From:
Re:
, Accounting Staff
Consolidation of Joint Venture
Hydro Corporation and Rich Corner Bank established a joint venture which borrowed
$30,000,000 and built a new production facility. That facility is now leased to Hydro on a 10-year
operating lease. Hydro currently reports the annual lease payment as an operating expense and
in the notes to its financial statements must report a contingent liability for its guarantee of the
debt of the joint venture. I have been asked to review the current financial reporting standards
and determine whether Hydro’s current reporting is appropriate.
The circumstances surrounding the creation of the joint venture and the lease arrangement with
Hydro appear to point to the need for Hydro to consolidate the joint venture with its own
operations. Although Rich Corner Bank holds 100 percent of the equity of the joint venture, it
has contributed less than 1 percent of the total assets of the joint venture ($200,000 of equity
versus $30,000,000 of total borrowings). Under normal circumstances, less than a 10 percent
investment in the entity’s total assets is considered insufficient to permit the entity to finance its
activities. [FIN 46R, Par 9; ASC 810-10-25-45]
In this situation, Hydro has guaranteed the $30,000,000 borrowed by the joint venture and has
guaranteed a 20 percent annual return on the equity investment of Rich Corner Bank. These
conditions will result in Hydro Corporation absorbing any losses incurred by the joint venture
and establish Hydro Corporation as the primary beneficiary of the entity. The FASB requires
consolidation by the entity that will absorb a majority of the entity’s expected losses if they
occur. [FIN 46R, Par. 14; ASC 810-10-25-38]
Consolidation of the joint venture will result in including the production facility among Hydro’s
assets and the debt as part of its long-term liabilities. The claim on the net assets of the joint
venture held by Rich Corner Bank will be reported as part of noncontrolling interest. Hydro’s
consolidated income statement will not include the lease payment as an operating expense, but
will include depreciation expense on the production facility and interest expense for the interest
payment made on the borrowing of the joint venture.
Primary citation:
FASB INT. 46 (ASC 810)
8-5
Chapter 08 - Intercompany Indebtedness
Case 8-3 Subsidiary Bond Holdings
MEMO
To:
From:
Re:
Financial Vice-President
Farflung Corporation
, Accounting Staff
Investment in Bonds Issued by Subsidiary
The consolidated financial statements of Farflung Corporation should include both Micro
Company and Eagle Corporation. The purpose of the consolidated statements is to present the
financial position and results of operations for a parent and one or more subsidiaries as if the
individual entities actually were a single company or entity. [ARB 51, Par. 1; ASC 810-10-10-1]
When one subsidiary purchases the bonds of another, the investment reported by the
purchasing affiliate and the liability reported by the debtor must be eliminated and a gain or loss
reported on the difference between the purchase price and the carrying value of the debt at the
time of purchase.
In preparing Farflung’s consolidated statements at December 31, 20X4, the following eliminating
entry should have been included in the worksheet:
Bonds Payable
Loss on Bond Retirement
Investment in Micro Company Bonds
400,000
24,000
424,000
The $24,000 loss should have been included in the consolidated income statement, leading to a
reduction of $15,600 ($24,000 x 0.65) in income assigned to the controlling interest and a
reduction of $8,400 ($24,000 x 0.35) in income assigned to noncontrolling shareholders. This
error should be corrected by restating the financial statements of the consolidated entity for
20X4.
While omission of the eliminating entry resulted in incorrect financial statements for the
consolidated entity, it should have no impact on the financial statements of the individual
subsidiaries. Assuming (1) the bonds had 15 years remaining until maturity when purchased by
Eagle and pay 8 percent interest annually, (2) straight-line amortization of the premium paid by
Eagle is appropriate, and (3) the consolidated financial statements as of December 31, 20X4,
are corrected, the eliminating entry at December 31, 20X5, is:
Bonds Payable
Interest Income
Investment in Micro Company
Noncontrolling Interest
Investment in Micro Company Bonds
Interest Expense
(a) ($400,000 x 0.08) - ($24,000/15 years)
(b) $424,000 - ($24,000/15 years)
(c) $400,000 x 0.08
Primary citation:
ARB 51, Par. 6; ASC 810-10-45-1
8-6
400,000
30,400(a)
15,600
8,400
422,400(b)
32,000(c)
Chapter 08 - Intercompany Indebtedness
C8-4 Interest Income and Expense
a. Snerd apparently paid more than par value for the bonds and is amortizing the premium
against interest income over the life of the bonds. Thus, the cash received is greater than the
amount of interest income recorded.
b.
With the information given, the following appears to be true:
(1) When purchasing the bonds, Snerd apparently paid less than the current carrying
amount of the bonds on the subsidiary’s books because a constructive gain on bond
retirement is included in the 20X3 consolidated income statement. Since Snerd paid par
value for the bonds, they must have been sold at a premium by the subsidiary.
(2) Because the bonds were sold at a premium, interest expense recorded by the
subsidiary will be less than the annual interest payment made to the parent.
(3) Interest income recorded each period by Snerd will exceed interest expense recorded
by the subsidiary. When the two balances are eliminated, the effect will be to reduce
income to both the controlling and noncontrolling shareholders.
C8-5 Intercompany Debt
Answers to this case can be found in the SEC Form 10-K filed by Hershey Foods and its annual
report.
a. When intercompany loans are made between affiliates in different countries, the problem of
changing currency exchange rates may arise, especially if any of the loans are denominated in
a currency that rapidly changes in value against the dollar. Hershey Foods and many other
companies in the same situation hedge their intercompany receivables/payables through foreign
currency forward contracts and swaps.
b. Hershey's intercompany receivables/payables appear to come primarily from intercompany
purchases and sales of goods.
8-7
Chapter 08 - Intercompany Indebtedness
SOLUTIONS TO EXERCISES
E8-1 Bond Sale from Parent to Subsidiary
a.
Journal entries recorded by Humbolt Corporation:
January 1, 20X2
Investment in Lamar Corporation Bonds
Cash
July 1, 20X2
Cash
Interest Income
Investment in Lamar Corporation Bonds
156,000
156,000
4,500
4,200
300
December 31, 20X2
Interest Receivable
Interest Income
Investment in Lamar Corporation Bonds
b.
4,500
4,200
300
Journal entries recorded by Lamar Corporation:
January 1, 20X2
Cash
Bonds Payable
Bond Premium
156,000
150,000
6,000
July 1, 20X2
Interest Expense
Bond Premium
Cash
4,200
300
December 31, 20X2
Interest Expense
Bond Premium
Interest Payable
4,200
300
c.
4,500
4,500
Eliminating entries, December 31, 20X2:
Bonds payable
Premium on Bonds Payable
Interest income
Investment in Lamar Corporation Bonds
Interest expense
Eliminate intercorporate bond holdings.
Interest payable
Interest receivable
Eliminate intercompany receivable/payable.
8-8
150,000
5,400
8,400
155,400
8,400
4,500
4,500
Chapter 08 - Intercompany Indebtedness
E8-2 Computation of Transfer Price
a.
$105,000 = $100,000 par value + ($250 x 20 periods) premium
b.
$103,500 = $105,000 - ($250 x 6 periods)
c.
Eliminating entries:
Bonds Payable
Bond Premium
Interest Income
Investment in Nettle Corporation Bonds
Interest Expense
Interest Payable
Interest Receivable
100,000
3,500
11,500
103,500
11,500
6,000
6,000
E8-3 Bond Sale at Discount
a.
$16,800 = [($600,000 x 0.08) + ($12,000 / 5 years)] x 1/3
b.
Journal entries recorded by Wood Corporation:
January 1, 20X4
Cash
Interest Receivable
16,000
16,000
July 1, 20X4
Cash
Investment in Carter Company Bonds
Interest Income
$800 = ($400,000 - $392,000)/(5 x 2)
December 31, 20X4
Interest Receivable
Investment in Carter Company Bonds
Interest Income
c.
16,000
800
16,800
16,000
800
16,800
Eliminating entries, December 31, 20X4:
Bonds Payable
Interest Income
Investment in Carter Company Bonds
Bond Discount
Interest Expense
$33,600 = $16,000 + $16,000 + $800 + $800
$395,200 = $392,000 + ($800 x 4)
$4,800 = $8,000 - ($800 x 4)
Interest Payable
Interest Receivable
400,000
33,600
395,200
4,800
33,600
16,000
16,000
8-9
Chapter 08 - Intercompany Indebtedness
E8-4 Evaluation of Intercorporate Bond Holdings
a.
The bonds were originally sold at a discount. Stellar purchased the bonds at par value and
a constructive loss was reported.
b.
The annual interest payment received by Stellar will be less than the interest expense
recorded by the subsidiary. When bonds are sold at a discount, the issue price of the
bonds is adjusted downward because the annual interest payment is less than is needed to
issue the bonds at par value.
c.
In 20X6, consolidated net income was decreased as a result of the loss on constructive
retirement of bonds. Each period following the purchase, the amount of interest expense
recorded by the subsidiary will exceed the interest income recorded by the parent. When
these two amounts are eliminated, consolidated net income will be increased. Thus,
consolidated net income for 20X7 will be increased.
E8-5 Multiple-Choice Questions
1.
a
A constructive gain of $100,000 is included in consolidated net income for the period
ended March 31, 20X8, and consolidated retained earnings at March 31, 20X8.
Because the bonds of the parent are constructively retired, there is no effect on the
amounts assigned to the noncontrolling interest. [AICPA Adapted]
2.
a
The loss on bond retirement will result in a reduction in consolidated retained earnings.
[AICPA Adapted]
3.
b
$4,700 = ($50,000 x 0.10) - ($3,000 / 10 years)
4.
a
$4,000 = ($50,000 x 0.10) - ($8,000 / 8 years)
5.
c
$5,600 loss = $58,000 purchase price
- [$53,000 - ($3,000 / 10 years) x 2 years]
6.
c
Operating income of Kruse Corporation
Net income of Gary's Ice Cream Parlors
Less:
Loss on bond retirement
Recognition during 20X6
($4,700 - $4,000)
Consolidated net income
$40,000
20,000
$60,000
(5,600)
700
$55,100
8-10
Chapter 08 - Intercompany Indebtedness
E8-6 Multiple-Choice Questions
1.
a
$14,000 = [($300,000 x 0.09) - ($60,000 / 10 years)]
x ($200,000 / $300,000)
2.
c
$12,000 = [$120,000 - ($20,000 / 10 years) x 2 years] - $104,000
3.
b
Net income of Solar Corporation
Unrecognized portion of gain
on bond retirement ($12,000 - $1,500)
Proportion of stock held by
noncontrolling interest
Income to noncontrolling interest
$30,000
10,500
$40,500
x
.20
$ 8,100
E8-7 Constructive Retirement at End of Year
a.
Eliminating entries, December 31, 20X5:
Bonds Payable
Premium on Bonds Payable
Investment in Able Company Bonds
Gain on Bond Retirement
$9,000 = [($400,000 x 1.03) - $400,000] x 15/20
$12,000 = $9,000 + $400,000 - $397,000
Interest Payable
Interest Receivable
b.
400,000
9,000
397,000
12,000
18,000
18,000
Eliminating entries, December 31, 20X6:
Bonds Payable
Premium on Bonds Payable
Interest Income
Investment in Able Company Bonds
Interest Expense
Investment in Able Co.
NCI in NA of Able Co.
$8,400 = $9,000 - [$9,000 / (15 x 2)] x 2
$36,200 = $36,000 + [$3,000 / (15 x 2)] x 2
$397,200 = $397,000 + ($100 x 2)
$35,400 = $36,000 - ($300 x 2)
$7,200 = $12,000 x 0.60
$4,800 = $12,000 x 0.40
Interest Payable
Interest Receivable
400,000
8,400
36,200
397,200
35,400
7,200
4,800
18,000
18,000
8-11
Chapter 08 - Intercompany Indebtedness
E8-8 Constructive Retirement at Beginning of Year
a.
Eliminating entries, December 31, 20X5:
Bonds Payable
400,000
Premium on Bonds Payable
9,000
Interest Income
36,200
Investment in Able Company Bonds
397,000
Interest Expense
35,400
Gain on Bond Retirement
12,800
$9,000 = [($400,000 x 1.03) - $400,000] x 15/20
$36,200 = $36,000 +[($400,000 - $396,800)/(16 x 2)] x 2
$397,000 = $396,800 + ($100 x 2)
$35,400 = $36,000 - ($300 x 2)
$12,800 = [($400,000 x 1.03) - $400,000] x 16/20 + ($400,000 - $396,800)
Interest Payable
Interest Receivable
b.
18,000
18,000
Eliminating entries, December 31, 20X6:
Bonds Payable
Premium on Bonds Payable
Interest Income
Investment in Able Company Bonds
Interest Expense
Investment in Able Co.
NCI in NA of Able Co.
Interest Payable
Interest Receivable
400,000
8,400
36,200
397,200
35,400
7,200
4,800
18,000
18,000
8-12
Chapter 08 - Intercompany Indebtedness
E8-9 Retirement of Bonds Sold at a Discount
Elimination of bond investment at December 31, 20X8:
Bonds Payable
300,000
Interest Income
21,240
Loss on Constructive Bond Retirement
2,730
Investment in Farley Corporation Bonds
Interest Expense
Discount on Bonds Payable
Eliminate intercorporate bond holdings:
$21,240 = $21,000 + [($300,000 - $296,880) / 13 years]
$2,730 = $296,880 - $294,150 (computed below)
$297,120 = $296,880 + [($300,000 - $296,880) / 13 years]
$21,450 = $21,000 + ($9,000 / 20 years)
$5,400 = ($9,000 / 20 years) x 12 years
297,120
21,450
5,400
Computation of book value of liability at constructive retirement
Sale price of bonds ($300,000 x 0.97)
Amortization of discount
[($300,000 - $291,0000) / 20 years] x 7 years
Book value of liability at January 1, 20X8
$291,000
3,150
$294,150
E8-10 Loss on Constructive Retirement
Eliminating entries, December 31, 20X8:
Bonds Payable
Interest Income
Loss on Bond Retirement
Investment in Apple Corporation Bonds
Discount on Bonds Payable
Interest Expense
Interest Payable
Interest Receivable
100,000
8,000
12,000
106,000
3,000
11,000
5,000
5,000
8-13
Chapter 08 - Intercompany Indebtedness
E8-11 Determining the Amount of Retirement Gain or Loss
a.
Par value of bonds outstanding
Annual interest rate
Interest payment
Amortization of bond premium
($15,000 x 2 bonds) / 5 years
Interest charge for full year
Less: Interest on bond purchased by Online Enterprises
[($18,000 x 1/2) x (4 months / 12 months)]
Interest expense included in consolidated
income statement
$200,000
x
.12
$ 24,000
b.
Sale price of bonds, January 1, 20X1
Amortization of premium [($15,000 / 5) x 2 2/3 years]
Book value at time of purchase
Purchase price
Gain on bond retirement
$115,000
(8,000)
$107,000
(100,000)
$ 7,000
c.
Eliminating entries, December 31, 20X3:
Bonds Payable
Bond Premium
Interest Income
Investment in Downlink Bonds
Interest Expense
Gain on Bond Retirement
Interest Payable
Interest Receivable
(6,000)
$ 18,000
(3,000)
$ 15,000
100,000
6,000
4,000
100,000
3,000
7,000
6,000
6,000
8-14
Chapter 08 - Intercompany Indebtedness
E8-12 Evaluation of Bond Retirement
a.
No gain or loss will be reported by Bundle.
b.
A gain of $13,000 will be reported:
Book value of liability reported by Bundle:
Par value of bonds outstanding
Unamortized premium
$8,000 - [($8,000 / 10 years) x 3.5 years]
Book value of debt
Amount paid by Parent
Gain on bond retirement
c.
5,200
$205,200
(192,200)
$ 13,000
Consolidated net income for 20X6 will increase by $12,000:
Gain on bond retirement
Adjustment for excess of interest income
over interest expense:
Interest income
Interest expense
Increase in consolidated net income
d.
$200,000
$ 13,000
$(11,600)
10,600
(1,000)
$ 12,000
Eliminating entries, December 31, 20X6:
Bonds Payable
Premium on Bonds Payable
Interest Income
Investment in Bundle Company Bonds
Interest Expense
Gain on Bond Retirement
Eliminate intercorporate bond holdings:
$4,800 = ($8,000 / 10 years) x 6 years
$11,600 = [$22,000 + ($7,800 / 6.5 years)] / 2
$192,800 = $192,200 + [($7,800 / 6.5 years) / 2]
$10,600 = ($22,000 - $800) / 2
Interest Payable
Interest Receivable
Eliminate intercompany receivable/payable.
8-15
200,000
4,800
11,600
192,800
10,600
13,000
11,000
11,000
Chapter 08 - Intercompany Indebtedness
E8-12 (continued)
e.
f.
Eliminating entries, December 31, 20X7:
Bonds Payable
Premium on Bonds Payable
Interest Income
Investment in Bundle Company Bonds
Interest Expense
Investment in Bundle Co.
NCI in NA of Bundle Co.
Eliminate intercorporate bond holdings:
$4,000 = ($8,000 / 10 years) x 5 years
$23,200 = $22,000 + ($7,800 / 6.5 years)
$194,000 = $192,800 + ($7,800 / 6.5 years)
$21,200 = $22,000 - ($8,000 / 10 years)
$8,400 = ($13,000 - $1,000) x 0.70
$3,600 = ($13,000 - $1,000) x 0.30
200,000
4,000
23,200
Interest Payable
Interest Receivable
Eliminate intercompany receivable/payable.
11,000
194,000
21,200
8,400
3,600
11,000
Income assigned to noncontrolling interest in 20X7 is $14,400:
Net income reported by Bundle
Adjustment for excess of interest income
over interest expense:
Interest income
Interest expense
Realized net income
Proportion of ownership held
Income assigned to noncontrolling interest
8-16
$ 50,000
$(23,200)
21,200
(2,000)
$ 48,000
x
.30
$ 14,400
Chapter 08 - Intercompany Indebtedness
E8-13 Elimination of Intercorporate Bond Holdings
a.
Eliminating entries, December 31, 20X8:
Bonds Payable
Premium on Bonds Payable
Interest Income
Constructive Loss on Bond Retirement
Investment in Stang Corporation Bonds
Interest Expense
Eliminate intercorporate bond holdings:
$3,000 = $5,000 - ($500 x 4 years)
$11,300 = $12,000 - ($4,900 / 7 years)
$1,400 = $104,900 - ($105,000 - $1,500)
$104,200 = $104,900 - ($4,900 / 7 years)
$11,500 = $12,000 - ($5,000 / 10 years)
Interest Payable
Interest Receivable
Eliminate intercompany receivable/payable.
b.
104,200
11,500
6,000
6,000
Income assigned to noncontrolling interest in 20X8 is $6,580:
Net income reported by Stang Corporation
Constructive loss on bond retirement
Adjustment for excess of interest expense
over interest income:
Interest expense
Interest income
Realized net income
Proportion of ownership held
Income assigned to noncontrolling interest
c.
100,000
3,000
11,300
1,400
$ 20,000
(1,400)
$11,500
(11,300)
200
$ 18,800
x 0.35
$ 6,580
Eliminating entries, December 31, 20X9:
Bonds Payable
Premium on Bonds Payable
Interest Income
Investment in Stang Corp.
NCI in NA of Stang Corp.
Investment in Stang Corporation Bonds
Interest Expense
Eliminate intercorporate bond holdings:
$2,500 = $3,000 - $500
$11,300 = $12,000 - ($4,900 / 7 years)
$780 = ($1,400 - $200) x 0.65
$420 = ($1,400 - $200) x 0.35
$103,500 = $104,200 - $700
$11,500 = $12,000 - ($5,000 / 10 years)
Interest Payable
Interest Receivable
Eliminate intercompany receivable/payable.
8-17
100,000
2,500
11,300
780
420
103,500
11,500
6,000
6,000
Chapter 08 - Intercompany Indebtedness
SOLUTIONS TO PROBLEMS
P8-14 Consolidation Worksheet with Sale of Bonds to Subsidiary
a.
b.
Entries recorded by Porter on its investment in Temple:
Cash
Investment in Temple Corporation
Record dividends from Temple: $10,000 x 0.60
6,000
Investment in Temple Corporation
Income from Subsidiary
Record equity-method income: $30,000 x 0.60
18,000
6,000
18,000
Entry recorded by Porter on its bonds payable:
Interest Expense
6,000
Bond Premium
400
Cash
Record interest payment: $400 = ($82,000 - $80,000) / 5 years
c.
6,400
Entry recorded by Temple on bond investment:
Cash
Interest Income
Investment in Porter Company Bonds
8-18
6,400
6,000
400
Chapter 08 - Intercompany Indebtedness
P8-14 (continued)
d.
Book Value Calculations:
Original book value
+ Net Income
- Dividends
Ending book value
NCI
40%
60,000
12,000
(4,000)
68,000
+
Basic elimination entry
Common stock
Retained earnings
Income from Temple Co.
NCI in NI of Temple Co.
Dividends declared
Investment in Temple Co.
NCI in NA of Temple Co.
Eliminate intercorporate bond holdings
Bonds Payable
Bond Premium
Interest Income
Investment in Temple Co.'s Bonds
Interest Expense
Porter Co.
60%
90,000
18,000
(6,000)
102,000
=
Common
Stock
100,000
100,000
100,000
50,000
18,000
12,000
10,000
102,000
68,000
80,000
1,200
6,000
81,200
6,000
8-19
+
Retained
Earnings
50,000
30,000
(10,000)
70,000
Chapter 08 - Intercompany Indebtedness
P8-14 (continued)
e.
Income Statement
Sales
Interest Income
Less: COGS
Less: Depreciation Expense
Less: Interest Expenses
Income from Temple Co.
Consolidated Net Income
NCI in Net Income
Controlling Interest in Net Income
Statement of Retained Earnings
Beginning Balance
Net Income
Less: Dividends Declared
Ending Balance
Balance Sheet
Cash and Accounts Receivable
Inventory
Buildings & Equipment
Less: Accumulated Depreciation
Investment in Porter Co.Bonds
Investment in Temple Co.
Total Assets
Accounts Payable
Bonds Payable
Bond Premium
Common Stock
Retained Earnings
NCI in NA of Temple Co.
Total Liabilities & Equity
Porter
Co.
Temple
Co.
200,000
114,000
6,000
(61,000)
(15,000)
(14,000)
(99,800)
(25,000)
(6,000)
18,000
87,200
30,000
87,200
30,000
230,000
87,200
(40,000)
277,200
50,000
30,000
(10,000)
70,000
80,200
120,000
500,000
(175,000)
40,000
65,000
300,000
(75,000)
81,200
102,000
627,200
411,200
Elimination Entries
DR
CR
314,000
6,000
6,000
(160,800)
(40,000)
(14,000)
0
99,200
(12,000)
87,200
6,000
10,000
16,000
230,000
87,200
(40,000)
277,200
6,000
18,000
24,000
12,000
36,000
50,000
36,000
86,000
6,000
120,200
185,000
800,000
(250,000)
0
68,800
80,000
1,200
200,000
277,200
41,200
200,000
100,000
70,000
80,000
1,200
100,000
86,000
627,200
411,200
267,200
8-20
Consolidated
81,200
102,000
183,200
0
855,200
110,000
200,000
16,000
68,000
84,000
200,000
277,200
68,000
855,200
Chapter 08 - Intercompany Indebtedness
P8-15 Consolidation Worksheet with Sale of Bonds to Parent
a.
b.
Entries recorded by Mega Corporation on its investment in Tarp Company:
Cash
Investment in Tarp Company Stock
Record dividends from Temple: $20,000 x 0.90
18,000
Investment in Tarp Company Stock
Income from Subsidiary
Record equity-method income: $25,000 x 0.90
22,500
18,000
22,500
Entry recorded by Mega Corporation on its investment in Tarp Company bonds:
Cash
6,000
Interest Income
5,200
Investment in Tarp Company Bonds
800
Record interest payment: $800 = ($104,000 - $100,000) / 5 years
c.
Entry recorded by Tarp Company on its bonds payable:
Interest Expense
Bond Premium
Cash
5,200
800
6,000
d.
Book Value Calculations:
Original book value
+ Net Income
- Dividends
Ending book value
NCI
10%
13,000
2,500
(2,000)
13,500
+
Basic elimination entry
Common stock
Retained earnings
Income from Tarp Co.
NCI in NI of Tarp Co.
Dividends declared
Investment in Tarp Co.
NCI in NA of Tarp Co.
Eliminate intercorporate bond holdings
Bonds Payable
Bond Premium
Interest Income
Investment in Tarp Co.'s Bonds
Interest Expense
Mega
Corp.
90%
117,000
22,500
(18,000)
121,500
=
Common
Stock
80,000
80,000
80,000
50,000
22,500
2,500
20,000
121,500
13,500
100,000
1,600
5,200
101,600
5,200
8-21
+
Retained
Earnings
50,000
25,000
(20,000)
55,000
Chapter 08 - Intercompany Indebtedness
P8-15 (continued)
e.
Income Statement
Sales
Interest Income
Less: COGS
Less: Depreciation Expense
Less: Interest Expenses
Income from Tarp Co.
Consolidated Net Income
NCI in Net Income
Controlling Interest in Net Income
Statement of Retained Earnings
Beginning Balance
Net Income
Less: Dividends Declared
Ending Balance
Balance Sheet
Cash and Accounts Receivable
Inventory
Buildings & Equipment
Less: Accumulated Depreciation
Investment in Tarp Co.Bonds
Investment in Tarp Co.
Total Assets
Current Payables
Bonds Payable
Bond Premium
Common Stock
Retained Earnings
NCI in NA of Tarp Co.
Total Liabilities & Equity
Mega
Corp.
Tarp
Co.
140,000
5,200
(86,000)
(20,000)
(16,000)
22,500
45,700
125,000
(79,800)
(15,000)
(5,200)
45,700
25,000
242,000
45,700
(30,000)
257,700
50,000
25,000
(20,000)
55,000
22,000
165,000
400,000
(140,000)
101,600
121,500
670,100
36,600
75,000
240,000
(80,000)
271,600
0
92,400
200,000
120,000
257,700
35,000
100,000
1,600
80,000
55,000
100,000
1,600
80,000
80,200
670,100
271,600
261,800
8-22
Elimination Entries
DR
CR
Consolidated
265,000
5,200
25,000
5,200
(165,800)
(35,000)
(16,000)
0
48,200
(2,500)
45,700
5,200
20,000
25,200
242,000
45,700
(30,000)
257,700
5,200
22,500
27,700
2,500
30,200
50,000
30,200
80,200
5,200
58,600
240,000
640,000
(220,000)
101,600
121,500
223,100
0
718,600
127,400
200,000
25,200
13,500
38,700
120,000
257,700
13,500
718,600
Chapter 08 - Intercompany Indebtedness
P8-16 Direct Sale of Bonds to Parent
a.
Journal entries recorded by Fern Corporation:
January 1, 20X3
Cash
Interest Receivable
Receive interest on bond investment.
2,000
2,000
July 1, 20X3
Cash
Investment in Vincent Company Bonds
Interest Income
Record receipt of bond interest: $250 = $5,000 /
(10 years x 2)
2,000
250
2,250
December 31, 20X3
Cash
7,000
Investment in Vincent Company Stock
Record dividends for Vincent: $7,000 = $10,000 x 0.70
Interest Receivable (Current Receivables)
Investment in Vincent Company Bonds
Interest Income
Accrue interest income at year-end.
7,000
2,000
250
2,250
Investment in Vincent Company Stock
21,000
Income from Subsidiary
Record equity-method income: $21,000 = $30,000 x 0.70
21,000
Income from Vincent Co.
2,800
Investment in Vincent Company Stock
2,800
Record amortization of differential: $2,800 = ($56,000 / 14 years) x 0.70
b.
Journal entries recorded by Vincent Company:
January 1, 20X3
Interest Payable
4,000
Cash
Record interest payment: $4,000 = $100,000 x (.08 / 2)
4,000
July 1, 20X3
Interest Expense
4,500
Discount on Bonds Payable
500
Cash
4,000
Semiannual payment of interest: $500 = $10,000 / 20 semiannual
payments
December 31, 20X3
Interest Expense
Discount on Bonds Payable
Interest Payable (Current Liabilities)
Accrue interest expense at year-end.
8-23
4,500
500
4,000
Chapter 08 - Intercompany Indebtedness
P8-16 (continued)
c.
Book Value Calculations:
NCI
30%
Original book value
45,000
+ Net Income
9,000
- Dividends
(3,000)
Ending book value
51,000
+
Fern Corp.
70%
105,000
21,000
(7,000)
119,000
Common
Stock
50,000
=
Basic elimination entry
Common stock
Retained earnings
Income from Vincent Co.
NCI in NI of Vincent Co.
Dividends declared
Investment in Vincent Co.
NCI in NA of Vincent Co.
+
50,000
Retained
Earnings
100,000
30,000
(10,000)
120,000
50,000
100,000
21,000
9,000
10,000
119,000
51,000
Excess Value (Differential) Calculations:
NCI
Fern Corp.
30%
+
70%
Beg. balance
14,400
33,600
Changes
(1,200)
(2,800)
Ending balance
13,200
30,800
Amortized excess value reclassification entry:
Depreciation expense
Income from Vincent Co.
NCI in NI of Vincent Co.
Excess value (differential) reclassification entry:
Buildings and Equipment
Accumulated Depreciation
Investment in Vincent Co.
NCI in NA of Vincent Co.
Remove gain on land:
Investment in Vincent Co.
NCI in NA of Vincent Co.
Land
=
Buildings and
Equipment
56,000
56,000
4,000
2,800
1,200
56,000
12,000
30,800
13,200
5,600
2,400
8,000
Eliminate intercorporate bond holdings
Bonds Payable
Interest Income
Investment in Vincent Bonds
Interest Expense
Discount on BP
50,000
4,500
46,500
4,500
3,500
Interest Payable
Interest Receivable
2,000
2,000
8-24
+
Acc. Depr.
(8,000)
(4,000)
(12,000)
Chapter 08 - Intercompany Indebtedness
P8-16 (continued)
d.
Fern
Corp.
Income Statement
Sales
Interest income
Less: Other Expenses
Less: Interest Expense
Income from Vincent Co.
Consolidated Net Income
NCI in Net Income
Controlling Interest in Net
Income
Vincent
Co.
300,000
4,500
(198,500)
(27,000)
18,200
97,200
(161,000)
(9,000)
Elimination Entries
DR
CR
200,000
Consolidated
30,000
21,000
29,500
9,000
4,500
2,800
7,300
1,200
500,000
0
(363,500)
(31,500)
0
105,000
(7,800)
97,200
30,000
38,500
8,500
97,200
Statement of Retained Earnings
Beginning Balance
Net Income
Less: Dividends Declared
Ending Balance
238,800
97,200
(60,000)
276,000
100,000
30,000
(10,000)
120,000
100,000
38,500
8,500
10,000
18,500
238,800
97,200
(60,000)
276,000
Balance Sheet
Cash & Current Receivables
Inventory
Land, Buildings, & Equipment (net)
30,300
170,000
320,000
46,000
70,000
180,000
Investment in Vincent Co. Stock
144,200
Investment in Vincent Co. Bonds
Total Assets
46,500
711,000
Current Liabilities
Bonds Payable
Discount on Bonds Payable
Common Stock
Retained Earnings
NCI in NA of Vincent Co.
35,000
300,000
Total Liabilities & Equity
4,500
4,000
138,500
2,000
56,000
5,600
296,000
61,600
2,000
50,000
100,000
276,000
33,000
100,000
(7,000)
50,000
120,000
711,000
296,000
8-25
12,000
8,000
119,000
30,800
46,500
218,300
3,500
50,000
138,500
2,400
242,900
18,500
51,000
13,200
86,200
74,300
240,000
536,000
0
0
850,300
66,000
350,000
(3,500)
100,000
276,000
61,800
850,300
Chapter 08 - Intercompany Indebtedness
P8-17 Information Provided in Eliminating Entry
a.
Rupp Corporation is the parent company. In the eliminating entry, noncontrolling
interest is credited with a portion of the constructive gain on bond retirement.
b.
Rupp holds 75 percent ownership of Gross [$4,200 / ($4,200 + $1,400)].
c.
Amount paid to acquire bonds:
Investment in Gross bonds, December 31, 20X7
Amortization of discount following purchase
[($200,000 - $198,200) / 3 years] x 2.5 years
Purchase price paid by Rupp
d.
$198,200
(1,500)
$196,700
A gain of $7,700 was reported:
Book value of liability reported by Gross:
Par value of bonds outstanding
Unamortized premium
$8,000 - [($8,000 / 10 years) x 4.5 years]
Book value of debt
Purchase price paid by Rupp
Gain on bond retirement
e.
$200,000
4,400
$204,400
(196,700)
$ 7,700
Consolidated net income for 20X7 after adjustment for bond retirement:
Amount reported without adjustment
Adjustment for excess of interest income
over interest expense:
Interest income
Income expense
$ 70,000
$(18,600)
17,200
(1,400)
$ 68,600
Consolidated net income
f.
Income assigned to the noncontrolling interest will decrease by $350
($1,400 x 0.25) as a result of the eliminating entry.
g.
Eliminating entry prepared at December 31, 20X8:
Bonds Payable
Premium on Bonds Payable
Interest Income
Investment in Gross Corporation Bonds
Interest Expense
Investment in Gross Corp.
NCI in NA of Gross Corp.
Eliminate intercompany bond holdings:
$1,600 = ($2,400 / 3 years) x 2 years
$18,600 = ($200,000 x 0.09) + ($1,800 / 3 years)
$198,800 = $198,200 + ($1,800 / 3 years)
$17,200 = ($200,000 x 0.09) - ($2,400 / 3 years)
$3,150 = [$7,700 - ($1,400 x 2.5 years)] x 0.75
$1,050 = [$7,700 - ($1,400 x 2.5 years)] x 0.25
8-26
200,000
1,600
18,600
198,800
17,200
3,150
1,050
Chapter 08 - Intercompany Indebtedness
P8-18 Prior Retirement of Bonds
a.
Amount paid by Amazing Corporation for bonds:
Reported balance, December 31, 20X6
Amortization of premium during 20X6
($2,400 / 6 years)
Purchase price
$102,400
400
$102,800
b.
Interest Expense
9,500
Discount on Bonds Payable
500
Cash
9,000
Annual payment of interest: $9,500 = [$9,000 + ($3,000 / 6 years)]
c.
Cash
9,000
Investment in Broadway Company Bonds
Interest Income
Annual receipt of interest: $8,600 = [$9,000 - ($2,400 / 6 years)]
d.
e.
Bonds Payable
100,000
Loss on Bond Retirement
6,300
Investment in Broadway Company Bonds
Discount on Bonds Payable
Eliminate intercorporate bond holdings:
$6,300 = $102,800 - [$97,000 -($3,000 / 6 years)]
$102,800 = computed above
$3,500 = [$3,000 + ($3,000 / 6 years)]
400
8,600
102,800
3,500
Consolidated net Income and income to controlling interest for 20X5 and 20X6:
Operating income reported by Amazing
Net income reported by Broadway
Loss on bond retirement
Adjustment for excess of interest expense
($9,500) over interest income ($8,600)
Consolidated net income
Income to noncontrolling interest:
($60,000 - $6,300) x 0.15
($80,000 + $900) x 0.15
Income to controlling interest
8-27
20X5
$120,000
60,000
(6,300)
$173,700
20X6
$150,000
80,000
900
$230,900
(8,055)
$165,645
(12,135)
$218,765
Chapter 08 - Intercompany Indebtedness
P8-19 Incomplete Data
a. Purchase price of bonds:
Balance reported in bond investment account in
excess of par value, December 31, 20X4
($109,000 - $100,000)
Amount amortized per year ($9,000 / 6 years)
Premium at date of purchase
Par value
Purchase price
$
9,000
1,500
$ 10,500
100,000
$110,500
b. Carrying amount of liability on date of purchase:
Bond premium, December 31, 20X4
Amount amortized per year ($6,000 / 6 years)
Bond premium, January 1, 20X4
Par value
Carrying amount of liability, January 1, 20X4
$
6,000
1,000
$ 7,000
100,000
$107,000
c. Income to noncontrolling interest in 20X5:
Reported net income of Condor Company
Adjustment for excess of interest expense
over interest income recorded in 20X5
$ 30,000
500
$ 30,500
x
0.30
$ 9,150
Proportion of stock held by noncontrolling interest
Income assigned to noncontrolling interest
Excess of interest expense over interest income
Interest expense: ($100,000 x 0.12) - ($10,000 / 10)
Interest income: ($100,000 x 0.12) – ($10,500 / 7)
Excess
8-28
$11,000
(10,500)
$ 500
Chapter 08 - Intercompany Indebtedness
P8-20 Balance Sheet Eliminations
a.
Book Value Calculations:
Original book value
+ Net Income
- Dividends
Ending book value
NCI
20%
41,000
15,000
(2,000)
54,000
Bath
Corp.
80%
164,000
60,000
(8,000)
216,000
+
=
Common
Stock
100,000
+
100,000
Retained
Earnings
105,000
75,000
(10,000)
170,000
Reversal/Deferred GP Calculations:
Downstream Deferred GP
Upstream Deferred GP
Total
Total
(12,000)
(6,000)
(18,000)
=
Bath
Corp.'s
share
(12,000)
(4,800)
(16,800)
+
NCI's share
(1,200)
(1,200)
Basic elimination entry
Common stock
Retained earnings
Income from Stang Co.
NCI in NI of Stang Co.
Dividends declared
Investment in Stang Co.
NCI in NA of Stang Co.
100,000
105,000
43,200
13,800
Original amount invested (100%)
Beginning balance in retained earnings
Bath’s % of NI - Deferred GP + Reversal
NCI share of NI - Deferred GP + Reversal
10,000
199,200
52,800
8-29
100% of Stang Co.'s dividends declared
Net book value - Deferred GP + Reversal
NCI share of BV - Deferred GP + Reversal
Chapter 08 - Intercompany Indebtedness
P8-20 (continued)
20X4 Downstream Transactions
Sales
COGS
71,429
41,429
30,000
Gross Profit
28,571
16,571
12,000
Gross Profit %
=
Re-sold
58,000
+
Ending
Inventory
42,000
Total
100,000
28.57%
20X4 Upstream Transactions
Sales
COGS
38,462
18,462
20,000
Gross Profit
11,538
5,538
6,000
Gross Profit %
=
Re-sold
24,000
+
Ending
Inventory
26,000
Total
50,000
23.08%
Deferral of this year's unrealized profits on inventory transfers
Sales
Cost of Goods Sold
Inventory
150,000
132,000
18,000
Bond and other Debt Elimination Entries:
Bonds Payable
Bond Premium
Investment in Stang Bonds
Investment in Stang Stock
NCI in NA of Stang
Interest Payable
Interest Receivable
100,000
12,000
101,500
8,400
2,100
4,000
4,000
8-30
Chapter 08 - Intercompany Indebtedness
P8-20 (continued)
b.
Balance Sheet
Cash and Receivables
Inventory
Buildings & Equipment (net)
Investment in Stang Co.
Bonds
Investment in Stang Co.
Stock
Bath
Corp.
Stang
Co.
122,500
200,000
320,000
124,000
150,000
360,000
Elimination Entries
DR
CR
4,000
18,000
242,500
332,000
680,000
101,500
101,500
0
207,600
199,200
8,400
331,100
0
Total Assets
951,600
634,000
0
Accounts Payable
Bonds Payable
Premium on Bonds Payable
Common Stock
Retained Earnings
40,000
400,000
28,000
300,000
36,000
100,000
170,000
4,000
100,000
12,000
100,000
105,000
43,200
13,800
150,000
200,000
311,600
NCI in NA of Stang Co.
Total Liabilities & Equity
c.
Consolidated
951,600
634,000
528,000
64,000
600,000
24,000
200,000
311,600
10,000
132,000
52,800
2,100
196,900
Bath Corporation and Subsidiary
Consolidated Balance Sheet
December 31, 20X4
Cash and Receivables
Inventory
Buildings and Equipment (net)
Total Assets
$ 242,500
332,000
680,000
$1,254,500
Accounts Payable
Bonds Payable
Bond Premium
Stockholders’ Equity:
Controlling Interest:
Common Stock
Retained Earnings
Total Controlling interest
Noncontrolling Interest
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
8-31
$
$600,000
24,000
1,254,500
64,000
624,000
$200,000
311,600
$511,600
54,900
566,500
$1,254,500
54,900
1,254,500
Chapter 08 - Intercompany Indebtedness
P8-21 Computations Relating to Bond Purchase from Nonaffiliate
Note: We accidentally changed the “Investment in Bliss Perfume Company Bonds”
instead of “Investment in Bliss Perfume Company Stock” when we converted the
problem from the modified to the fully adjusted equity method. The following answer is
based on the following corrected Investment in Bliss Perfume Company Bonds: $105,600
a.
b.
c.
Balance reported, December 31, 20X4
Amortization of premium during 20X4:
Annual amortization ($5,600 / 7 years)
Portion of year held
Amortized in 20X4
Purchase price of bonds
Carrying value of liability at date of acquisition:
Carrying value at year-end
Premium amortized between date of purchase
and December 31, 20X4 ($1,000 x 0.75)
Carrying value at acquisition
Purchase price
Gain on constructive retirement
$105,600
$800
x 0.75
600
$106,200
$107,000
750
$107,750
(106,200)
$ 1,550
Eliminating entries, December 31, 20X4:
Bonds Payable
Bond Premium
Interest Income
Investment in Bliss Company Bonds
Interest Expense
Gain on Bond Retirement
Elimination of interest income:
Interest income at nominal rate
($100,000 x 0.10)
Annual amortization of premium by Parsons
Annual interest income recorded by Parsons
Portion of year held by Parsons
Interest income for 20X4
Elimination of interest expense:
Interest expense at nominal rate
($100,000 x 0.10)
Annual amortization of premium by Bliss
($10,000 / 10 years)
Annual interest expense recorded by Bliss
Portion of year held by Parsons
Interest expense eliminated
Interest Payable
Interest Receivable
100,000
7,000
6,900
105,600
6,750
1,550
$10,000
(800)
$ 9,200
x 0.75
$ 6,900
$10,000
(1,000)
$ 9,000
x 0.75
$ 6,750
5,000
5,000
8-32
Chapter 08 - Intercompany Indebtedness
P8-22 Computations following Parent's Acquisition of Subsidiary Bonds
a.
Book value of bonds purchased by Mainstream Corporation:
Balance reported, December 31, 20X5
Amortization of premium in 20X4 and 20X5
($11,250 / 3 years) x 2 years
Balance at date of purchase
Proportion of bonds purchased by Mainstream
Book value of bonds purchased
$111,250
7,500
$118,750
x
0.40
$47,500
Amount paid by Mainstream to purchase bonds:
Bond investment, December 31, 20X5
Amortization of premium in 20X4 and 20X5
($2,400 / 3 years) x 2 years
Purchase price
Gain on bond retirement
b.
c.
d.
Income from Offenberg
Investment in Offenberg
Recognize 80% share of 1/5 of the constructive gain
Bonds Payable
Bond Premium
Interest Income
Investment in Offenberg Company Bonds
Interest Expense
Investment in Offenberg
NCI in NA of Offenberg
Eliminate intercorporate bond holdings:
$4,500 = $11,250 x 0.40
$3,200 = ($40,000 x 0.10) - $800
$2,500 = ($40,000 x 0.10) - ($3,750 x 0.40)
$2,240 = ($3,500 - $700) x 0.80
$560 = ($3,500 - $700) x 0.20
Consolidated retained earnings
$42,400
1,600
(44,000)
$ 3,500
560
560
40,000
4,500
3,200
42,400
2,500
2,240
560
$501,680
8-33
Chapter 08 - Intercompany Indebtedness
P8-23 Consolidation Worksheet — Year of Retirement
a.
Book Value Calculations:
Tyler
NCI
+ Manufacturing = Common +
40%
60%
Stock
Original book
value
60,000
90,000
100,000
+ Net Income
12,000
18,000
- Dividends
(4,000)
(6,000)
Ending book
value
68,000
102,000
100,000
Reversal/Deferred GP Calculations:
Total
=
Constructive Gain
7,000
Extra Depreciation
400
Total
7,400
Basic elimination entry
Common stock
Retained earnings
Income from Brown Corp.
NCI in NI of Brown Corp.
Dividends declared
Investment in Brown Corp.
NCI in NA of Brown Corp.
Lofton Co.
Temple Corp.
Bond Elimination Entry:
Bonds Payable
Bond Premium
Investment in Brown Bonds
Gain on Bond Retirement
70,000
10,000
106,440
70,960
Original amount invested (100%)
Beginning balance in retained earnings
Tyler’s % of NI + Retirement Gain + Excess Depr.
NCI share of NI + Retirement Gain + Excess Depr.
100% of Brown Corp.'s dividends declared
Net book value + Retirement Gain + Excess Depr.
NCI share of BV + Retirement Gain + Excess Depr.
Accumulated
Depreciation
4,000
400
15,600
19,200
Actual
"As If"
Eliminate the gain on Equipment and correct asset's basis:
Investment in Temple Corp.
3,360
NCI in NA of Temple Corp.
2,240
Equipment
10,000
Accumulated Depreciation
15,600
Accumulated Depreciation
Depreciation Expense
50,000
30,000
(10,000)
Tyler’s share + NCI's share
4,200
2,800
240
160
4,440
2,960
100,000
50,000
22,440
14,960
Equipment
30,000
10,000
40,000
Retained
Earnings
400
400
50,000
7,000
50,000
7,000
8-34
Chapter 08 - Intercompany Indebtedness
P8-23 (continued)
Income Statement
Sales
Gain on Bond
Retirement
Less: Interest Expense
Less: Operating
Expenses
Income from Brown
Corp.
Consolidated Net
Income
NCI in Net Income
Controlling Interest in
Net Income
Tyler
Brown
Corp.
400,000
200,000
(20,000)
(20,000)
(302,200)
(150,000)
22,440
Investment in Brown
Corp. Bonds
Investment in Brown
Corp. Stock
Total Assets
Accounts Payable
Bonds Payable
Bond Premium
Common Stock
Retained Earnings
NCI in NA of Brown Co.
Total Liab. & Equity
Consolidated
600,000
7,000
7,000
(40,000)
400
(451,800)
22,440
0
100,240
30,000
22,440
14,960
7,400
115,200
(14,960)
100,240
30,000
37,400
7,400
100,240
50,000
30,000
50,000
37,400
7,400
146,640
100,240
(10,000)
70,000
87,400
10,000
17,400
(40,000)
206,880
Statement of Retained Earnings
Beginning Balance
146,640
Net Income
100,240
Less: Dividends
Declared
(40,000)
Ending Balance
206,880
Balance Sheet
Cash
Accounts Receivable
Inventory
Depreciable Assets
(net)
Elimination Entries
DR
CR
68,000
100,000
120,000
55,000
75,000
110,000
360,000
210,000
123,000
175,000
230,000
400
10,000
50,000
103,080
801,080
94,200
200,000
450,000
300,000
206,880
52,000
200,000
28,000
100,000
70,000
801,080
450,000
8-35
3,360
13,760
50,000
7,000
100,000
87,400
2,240
246,640
15,600
564,800
50,000
0
106,440
172,040
0
1,092,800
17,400
70,960
88,360
146,200
350,000
21,000
300,000
206,880
68,720
1,092,800
Chapter 08 - Intercompany Indebtedness
P8-23 (continued)
b.
Tyler Manufacturing and Subsidiary
Consolidated Balance Sheet
December 31, 20X3
Cash
Accounts Receivable
Inventory
Total Current Assets
Depreciable Assets (net)
Total Assets
$ 123,000
175,000
230,000
$ 528,000
564,800
$1,092,800
Accounts Payable
Bonds Payable
Bond Premium
Stockholders’ Equity:
Controlling Interest:
Common Stock
Retained Earnings
Total Controlling Interest
Noncontrolling Interest
Total Stockholders’ Equity
Total Liabilities and Stockholders' Equity
$ 146,200
$350,000
21,000
371,000
$300,000
206,880
$506,880
68,720
575,600
$1,092,800
Tyler Manufacturing and Subsidiary
Consolidated Income Statement
Year Ended December 31, 20X3
Sales
Gain on Bond Retirement
Total Revenue
Interest Expense
Operating Expenses
Total Expenses
Consolidated Net Income
Income to Noncontrolling Interest
Income to Controlling Interest
$600,000
7,000
$607,000
$ 40,000
451,800
(491,800)
$115,200
(14,960)
$100,240
Tyler Manufacturing and Subsidiary
Consolidated Statement of Retained Earnings
Year Ended December 31, 20X3
Retained Earnings, January 1, 20X3
Income to Controlling Interest, 20X3
$146,640
100,240
$246,880
(40,000)
$206,880
Dividends Declared, 20X3
Retained Earnings, December 31, 20X3
8-36
Chapter 08 - Intercompany Indebtedness
P8-24 Consolidation Worksheet — Year after Retirement
a.
Book Value Calculations:
NCI
40%
+
Bennett
Corp.
60%
=
+
Common
Stock
Retained
Earnings
Original book value
+ Net Income
- Dividends
68,000
20,000
(4,000)
102,000
30,000
(6,000)
100,000
70,000
50,000
(10,000)
Ending book value
84,000
126,000
100,000
110,000
Basic elimination entry
Common stock
Retained earnings
Income from Stone Cont. Co.
NCI in NI of Stone Cont. Co.
Dividends declared
Investment in Stone Cont. Co.
NCI in NA of Stone Cont. Co.
100,000
70,000
30,600
20,400
10,000
126,600
84,400
Original amount invested (100%)
Beginning balance in retained earnings
Bennett’s % of NI + Amort. of loss
NCI share of NI + Amort. of loss
100% of Stone Cont. Co.'s dividends
Net book value + Amort. of loss
NCI share of BV + Amort. of loss
Income to Noncontrolling Interest:
Reported net income of Stone
Amortization of loss on bond retirement:
Carrying value of bond investment
Par value of debt
Unamortized premium paid by
Bennett
Number of years until maturity
Amortization of premium annually
Realized net income of Stone Container
$50,000
$106,000
100,000)
$
÷
6,000
6*
1,000
$51,000
Proportion of stock held by
noncontrolling interest
Income to Noncontrolling Interest
* Stone’s reported interest expense for $100,000 bonds
Bennett’s reported interest income
Difference (amortization of premium)
Total premium
Yearly amortization
Years:
x 0.40
$20,400
$9,000
8,000
$1,000
6,000
÷ 1,000
6 years
8-37
Chapter 08 - Intercompany Indebtedness
P8-24 (continued)
Bond Elimination Entry:
Bonds Payable
Investment in Stone Cont. Stock.
NCI in NA of Stone Cont. Co.
Interest Income
Investment in Stone Cont. Bonds
Interest Expense
100,000
4,200
2,800
8,000
106,000
9,000
Bennett
Corp.
Income Statement
Sales
Interest Income
Less: Interest Expense
Less: Other Expenses
Income from Stone Cont. Co.
Consolidated Net Income
NCI in Net Income
Controlling Interest in Net Income
Stone
Cont.
Co.
450,000
8,000
(20,000)
(368,600)
30,600
100,000
(18,000)
(182,000)
100,000
50,000
Statement of Retained Earnings
Beginning Balance
Net Income
Less: Dividends Declared
Ending Balance
210,000
100,000
(40,000)
270,000
70,000
50,000
(10,000)
110,000
Balance Sheet
Cash
Accounts Receivable
Inventory
Other Assets
Investment in Stone Cont. Co. Bonds
Investment in Stone Cont. Co. Stock
Total Assets
61,600
100,000
120,000
340,000
106,000
122,400
850,000
20,000
80,000
110,000
250,000
80,000
200,000
300,000
270,000
50,000
200,000
100,000
110,000
850,000
460,000
Accounts Payable
Bonds Payable
Common Stock
Retained Earnings
NCI in NA of Stone Cont. Co.
Total Liabilities & Equity
8-38
Elimination Entries
DR
CR
250,000
9,000
700,000
0
(29,000)
(550,600)
0
120,400
(20,400)
100,000
9,000
10,000
19,000
210,000
100,000
(40,000)
270,000
106,000
126,600
232,600
81,600
180,000
230,000
590,000
0
0
1,081,600
19,000
84,400
103,400
130,000
300,000
300,000
270,000
81,600
1,081,600
8,000
50,000
460,000
9,000
30,600
38,600
20,400
59,000
70,000
59,000
129,000
4,200
4,200
100,000
100,000
129,000
2,800
331,800
Consolidated
9,000
Chapter 08 - Intercompany Indebtedness
P8-24 (continued)
b.
Bennett Corporation and Subsidiary
Consolidated Balance Sheet
December 31, 20X4
Cash
Accounts Receivable
Inventory
Total Current Assets
Other Assets
Total Asset
$
81,600
180,000
230,000
$ 491,600
590,000
$1,081,600
Accounts Payable
Bonds Payable
Stockholders’ Equity:
Controlling Interest:
Common Stock
Retained Earnings
Total Controlling Interest
Noncontrolling Interest
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
$ 130,000
300,000
$300,000
270,000
$570,000
81,600
651,600
$1,081,600
Bennett Corporation and Subsidiary
Consolidated Income Statement
December 31, 20X4
Sales
Interest Expense
Other Expenses
Total Expenses
Consolidated Net Income
Income to Noncontrolling Interest
Income to Controlling Interest
$700,000
$ 29,000
550,600
(579,600)
$120,400
(20,400)
$100,000
Bennett Corporation and Subsidiary
Consolidated Statement of Retained Earnings
Year Ended December 31, 20X4
Retained Earnings, January 1, 20X4
Income to Controlling Interest, 20X4
$210,000
100,000
$310,000
(40,000)
$270,000
Dividends Declared, 20X4
Retained Earnings, December 31, 20X4
8-39
Chapter 08 - Intercompany Indebtedness
P8-25 Intercorporate Inventory and Debt Transfers
a.
b.
Consolidated cost of goods sold for 20X7:
Amount reported by Lance Corporation
Amount reported by Avery Company
Adjustment for unrealized profit in
beginning inventory sold in 20X7
Adjustment for inventory purchased from
subsidiary and resold during 20X7:
CGS recorded by Lance
CGS recorded by Avery ($60,000 - $27,000)
Total recorded
CGS based on Lance's cost
[$40,000 x ($33,000 / $60,000)]
Required adjustment
Cost of goods sold
$620,000
240,000
(15,000)
$40,000
33,000
$73,000
(22,000)
(51,000)
$794,000
Consolidated inventory balance:
Amount reported by Lance
Amount reported by Avery
Total inventory reported
Unrealized profit in ending inventory held by
Avery [$20,000 x ($27,000 / $60,000)]
Consolidated balance
c.
$167,000
120,000
$287,000
(9,000)
$278,000
Entry to record interest expense for Avery Company:
Interest Expense
Bond Premium
Cash
15,200
800
16,000
Computation of interest expense
Par value of bonds issued
Stated interest rate
Annual interest payment
Annual amortization of premium ($4,800 / 6 years)
Interest expense for 20X7
8-40
$200,000
x
0.08
$ 16,000
(800)
$ 15,200
Chapter 08 - Intercompany Indebtedness
P8-25 (continued)
d.
Entry to record interest income for Lance Corporation:
Cash
Investment in Avery Company Bonds
Interest Income
6,400
200
6,600
Computation of interest income
Annual payment received ($80,000 x 0.08)
Amortization of discount
[($80,000 - $78,400) / 8 years]
Interest income for 20X7
e.
$6,400
200
$6,600
Amount assigned to the noncontrolling interest
Avery’s Common Stock
Avery’s Beginning RE
Avery’s Net Income
Avery’s Dividends
Constructive Gain
2 Years Amortization of Constructive Gain
Total
Proportion of ownership held by noncontrolling interest
$50,000
170,000
48,000
(24,000)
4,160
(1,040)
$247,120
x 0.25
$61,780
Income assigned to noncontrolling interest:
Net income reported by Avery Company
Adjustment for realization of profit on inventory
sold to Lance in 20X6
Adjustment for realization of constructive gain on
bond retirement ($4,160 / 8 years)
Realized net income of Avery for 20X7
Proportion of ownership held by noncontrolling
Interest
Income assigned to noncontrolling interest
Computation of constructive gain on bond retirement
Par value of bonds outstanding
Bond premium, December 31, 20X7
$4,800
Remaining years’ to maturity
÷
6
Amortization per year
$ 800
Years’ to maturity at purchase
x
8
Premium, December 31, 20X5
Book value of bonds
Proportion purchased
Book value of bonds purchased
Purchase price
Constructive gain
8-41
$48,000
15,000
(520)
$62,480
x 0.25
$15,620
$200,000
6,400
$206,400
x
0.40
$ 82,560
(78,400)
$ 4,160
Chapter 08 - Intercompany Indebtedness
P8-25 (continued)
f.
Book Value Calculations:
Original book value
+ Net Income
- Dividends
Ending book value
NCI
25%
55,000
12,000
(6,000)
61,000
Lance
Corp.
75%
165,000
36,000
(18,000)
183,000
+
=
Common
Stock
50,000
+
Retained
Earnings
170,000
48,000
(24,000)
194,000
50,000
Reversal/Deferred GP Calculations:
Upstream Reversal
Downstream Deferred GP
Amortization of Constructive Gain
Total
Basic elimination entry
Common stock
Retained earnings
Income from Avery Co.
NCI in NI of Avery Co.
Dividends declared
Investment in Avery Co.
NCI in NA of Avery Co.
Total
15,000
(9,000)
(520)
5,480
=
50,000
170,000
37,860
15,620
Lance Corp.'s
share
11,250
(9,000)
(390)
1,860
NCI's share
3,750
(130)
3,620
Original amount invested (100%)
Beginning balance in retained earnings
Lance Corp.’s % of NI + GP Reversal - Def. GP - Amort of Const. Gain
NCI share of NI + GP Reversal - Amort of Const. Gain
24,000
184,860
64,620
100% of Avery Co.'s dividends declared
Net book value + GP Reversal - Def. GP - Amort of Const. Gain
NCI share of BV + GP Reversal - Amort of Const. Gain
20X6 Upstream Transactions
Beginning
Inventory
Sales
59,000
COGS
44,000
Gross Profit
15,000
Reversal of last year's deferral:
Investment in Avery Co.
NCI in NA of Avery Co.
Cost of Goods Sold
+
11,250
3,750
15,000
8-42
Chapter 08 - Intercompany Indebtedness
P8-25 (continued)
20X7 Downstream Transactions
Sales
COGS
Gross Profit
Gross Profit %
Total
60,000
40,000
20,000
33.33%
=
Re-sold
33,000
22,000
11,000
+
Ending
Inventory
27,000
18,000
9,000
Deferral of this year's unrealized profits on inventory transfers
Sales
60,000
Cost of Goods Sold
51,000
Inventory
9,000
Bond Elimination Entry:
Bonds Payable
Bond Premium
Interest Income
Investment in Avery Co. Bonds
Interest Expense
Investment in Avery Co. Stock
NCI in NA of Avery Co.
80,000
1,920
6,600
78,800
6,080
2,730
910
$1,920 = ($3,200 / 10 years) x 6 years
$6,600 = ($80,000 x 0.08) + ($1,600 / 8 years)
$78,800 = $78,400 + [($1,600 / 8 years) x 2 years]
$6,080 = ($80,000 x 0.08) - ($3,200 / 10 years)
$2,730 = ($4,160 - $520) x 0.75
$910 = ($4,160 - $520) x 0.25
8-43
Chapter 08 - Intercompany Indebtedness
P8-25 (continued)
g.
Lance
Corp.
Avery
Co.
750,000
16,000
(620,000)
320,000
5,000
(240,000)
(45,000)
(35,000)
37,860
103,860
(15,000)
(22,000)
103,860
48,000
283,180
103,860
(50,000)
337,040
170,000
48,000
(24,000)
194,000
Balance Sheet
Cash
Accounts Receivable
Other Receivables
Inventory
Land
Buildings & Equipment
Less: Accumulated Depreciation
Investment in Avery Co. Bonds
Investment in Avery Co. Stock
37,900
110,000
30,000
167,000
90,000
500,000
(155,000)
78,800
176,340
48,800
105,000
15,000
120,000
40,000
250,000
(75,000)
Total Assets
1,035,040
503,800
118,000
40,000
250,000
35,000
20,000
200,000
4,800
50,000
Income Statement
Sales
Interest and Other Income
Less: COGS
Less: Depreciation Expense
Less: Interest and Other Expenses
Income from Avery Co.
Consolidated Net Income
NCI in Net Income
Controlling Interest in Net Income
Statement of Retained Earnings
Beginning Balance
Net Income
Less: Dividends Declared
Ending Balance
Accounts Payable
Other Payables
Bonds Payable
Bond Premium
Common Stock
Additional Paid-in Capital
Retained Earnings
NCI in NA of Avery Co.
Total Liabilities & Equity
250,000
40,000
337,040
1,035,040
8-44
48,000
Elimination Entries
DR
CR
60,000
6,600
15,000
51,000
170,000
120,080
290,080
72,080
72,080
24,000
96,080
283,180
103,860
(50,000)
337,040
72,080
9,000
11,250
0
78,800
184,860
2,730
9,000
80,000
1,920
50,000
194,000
290,080
3,750
503,800
422,000
1,010,000
14,400
(794,000)
(60,000)
(50,920)
0
119,480
(15,620)
103,860
6,080
37,860
104,460
15,620
120,080
Consolidated
96,080
64,620
910
160,700
86,700
215,000
45,000
278,000
130,000
750,000
(230,000)
0
0
1,274,700
153,000
60,000
370,000
2,880
250,000
40,000
337,040
61,780
1,274,700
Chapter 08 - Intercompany Indebtedness
P8-26 Intercorporate Bond Holdings and Other Transfers
a.
Book Value Calculations:
Original book value
+ Net Income
- Dividends
Ending book value
Pond
Corp.
75%
150,000
22,500
(7,500)
165,000
+
NCI
25%
50,000
7,500
(2,500)
55,000
=
Common
Stock
50,000
+
50,000
Retained
Earnings
150,000
30,000
(10,000)
170,000
Reversal/Deferred GP Calculations:
Downstream Extra Depreciation
Amortization of Constr. Loss
Total
Basic elimination entry
Common stock
Additional Paid-in Capital
Retained earnings
Income from Skate Co.
NCI in NI of Skate Co.
Dividends declared
Investment in Skate Co.
NCI in NA of Skate Co.
Skate Co.
Pond
Corp.
Building
65,000
60,000
125,000
Total
1,500
600
2,100
=
Pond Corp.'s
share
1,500
450
1,950
30,000
20,000
150,000
24,450
7,650
10,000
166,950
55,150
Actual
As if
80,000
15,000
60,000
75,000
Accumulated
Depreciation
Depreciation Expense
1,500
Eliminate the gain on land:
Investment in Skate Co.
NCI in NA of Skate Co.
Land
9,750
3,250
1,500
13,000
8-45
NCI's share
150
150
Original amount invested (100%)
Original amount invested (100%)
Beginning balance in retained earnings
Pond Corp.’s % of NI + Extra Depr. + Amort. of Constr. Loss
NCI share of NI + Amort. of Constr. Loss
100% of Skate Co.'s dividends declared
Net book value + Extra Depr. + Amort. of Constr. Loss
NCI share of BV + Amort. of Constr. Loss
Accumulated
Depreciation
6,500
1,500
75,000
Eliminate the gain on building and correct
asset's basis:
Investment in Skate Co.
Building
Accumulated Depreciation
+
Chapter 08 - Intercompany Indebtedness
P8-26 (continued)
Bond Elimination Entry:
Bonds Payable
40,000
Interest Income
3,600
Investment in Skate Co. Stock
3,150
NCI in NA of Skate co.
1,050
Investment in Skate Co. Bonds
Interest Expense
Bond Discount
Debt Elimination Entry:
Interest Payable
Interest Receivable
42,400
4,200
1,200
2,000
2,000
8-46
Chapter 08 - Intercompany Indebtedness
P8-26 (continued)
b.
Pond
Corp.
Income Statement
Sales
Interest Income
Less: COGS
Less: Depreciation Expense
Less: Other Operating
Expenses
Less: Interest Expense
Less: Miscellaneous Expense
Income from Skate Co.
Consolidated Net Income
NCI in Net Income
Controlling Interest in NI
Statement of Retained Earnings
Beginning Balance
Net Income
Less: Dividends Declared
Ending Balance
Balance Sheet
Cash
Accounts Receivable
Interest and Other
Receivables
Inventory
Land
Buildings & Equipment
Less: Accumulated
Depreciation
Investment in Skate Co. Stock
Investment in Skate Co.
Bonds
Investment in Tin Co. Bonds
Total Assets
450,000
18,500
(285,000)
(35,000)
Skate
Co.
250,000
3,600
(136,000)
(24,000)
(50,000)
(24,000)
(11,900)
24,450
87,050
(40,000)
(10,500)
(9,500)
87,050
30,000
222,500
87,050
(30,000)
279,550
150,000
30,000
(10,000)
170,000
53,100
176,000
47,000
65,000
45,000
140,000
50,000
400,000
10,000
50,000
22,000
240,000
(185,000)
139,050
(94,000)
42,400
134,000
994,550
Elimination Entries
DR
CR
30,000
340,000
Accounts Payable
Interest and Other Payables
Bonds Payable
Bond Discount
Common Stock
Additional Paid-in Capital
Retained Earnings
NCI in NA of Skate Co.
65,000
45,000
300,000
150,000
155,000
279,550
11,000
12,000
100,000
(3,000)
30,000
20,000
170,000
Total Liabilities & Equity
994,550
340,000
8-47
1,500
150,000
35,700
185,700
700,000
14,900
(421,000)
(57,500)
5,700
(90,000)
(30,300)
(21,400)
0
94,700
(7,650)
87,050
5,700
10,000
15,700
222,500
87,050
(30,000)
279,550
4,200
24,450
28,050
7,650
35,700
Consolidated
5,700
100,100
241,000
2,000
13,000
60,000
1,500
15,000
9,750
3,150
89,400
75,000
166,950
(352,500)
0
42,400
0
134,000
1,124,600
299,350
15,700
55,150
76,000
55,000
360,000
(1,800)
150,000
155,000
279,550
50,850
72,050
1,124,600
2,000
40,000
1,200
30,000
20,000
185,700
3,250
1,050
282,000
53,000
190,000
59,000
700,000
Chapter 08 - Intercompany Indebtedness
P8-27A Comprehensive Multiple-Choice Questions (Modified Equity Method)
1.
b
$374,000
[$200,000 + $180,000 - .30($70,000 - $50,000)]
2.
b
$294,000
[$220,000 + $140,000 - $2,000 - ($70,000 - $6,000)]
3.
a
$7,400
[($100,000 x 0.09) - ($6,400 premium / 4 years)]
4.
b
$32,000
[$24,000 + ($16,000 / 2)]
5.
b
$13,125
($293,125 - $200,000 - $50,000 - $30,000)
6.
d
$83,000
($50,000 + $30,000 + $3,000)
7.
b
$3,000
Purchase price
[$106,400 + ($6,400 / 4 years)]
Book value [$100,000 + $4,000 +
($4,000 / 4 years)]
Loss on bond retirement
8.
9.
a
d
$4,620
$68,645
b
$5,625
(105,000)
$ 3,000
Reported net income of Grange Corporation
Add: Inventory profits of prior period
realized in 20X6
Less: Unrealized inventory profits of
20X6
Less: Loss on bond retirement,
January 1, 20X6
Add: Interest differential in 20X6
Realized income of Grange
Less: Depreciation on differential assigned
to buildings and equipment
Less: Impairment of goodwill
Adjusted income
Proportion of stock held by
noncontrolling interest
Income assigned to noncontrolling interest
$40,000
Par value of shares outstanding
Retained earnings, December 31, 20X6
Less: Unrealized inventory profit
Unrecorded portion of bond
retirement loss ($3,000 - $600)
Add: Unamortized differential assigned to
buildings and equipment ($30,000 $9,000)
Unimpaired goodwill ($13,125 - $7,500)
$200,000
125,000
(6,000)
Proportion of stock held by
noncontrolling interest
Assigned to noncontrolling interest
10.
$108,000
($13,125 - $7,500)
8-48
2,000
(6,000)
(3,000)
600
$33,600
(3,000)
(7,500)
$23,100
x 0.20
$ 4,620
(2,400)
21,000
5,625
$343,225
x
0.20
$ 68,645
Chapter 08 - Intercompany Indebtedness
P8-28 Comprehensive Problem: Intercorporate Transfers
a.
Goodwill as of January 1, 20X7:
Fair value of consideration given by Topp
Fair value of noncontrolling interest at acquisition
Total
Book value of net assets at acquisition
Differential at acquisition
Increase in fair value of land
Goodwill at acquisition
b.
Computation of balance in investment account, January 1, 20X7:
Bussman stockholders' equity, January 1, 20X7:
Common stock
Premium on common stock
Retained earnings
Stockholders' equity, January 1, 20X7
Topp's ownership share
Book value of shares held by Topp
Differential at January 1, 20X7 ($80,000 x 0.90)
Inventory sale deferred gross profit ($4,500 x 0.90)
Balance in Investment in Bussman Stock account,
January 1, 20X7
Working backwards:
Ending Balance
- Net Income ($100,000 x 0.90)
+ Dividends ($40,000 x 0.90)
- Reversal of 20X6 deferred gross profit ($4,500 x 0.90)
+ 20X7 gross profit deferral ($5,400 x 0.90)
+ Impairment loss ($25,000 x 0.90)
- Bond retirement gain ($24,000 x 0.90)
+ Retirement gain amortization ($6,000 x 0.90)
Total
c.
$1,152,000
128,000
$1,280,000
(1,200,000)
$ 80,000
(30,000)
$ 50,000
$ 500,000
280,000
470,000
$1,250,000
x
0.90
$1,125,000
72,000
(4,050)
$1,192,950
$1,239,840
(90,000)
36,000
(4,050)
4,860
22,500
(21,600)
5,400
$ 1,192,950
Gain on constructive retirement of Bussman's bonds:
Original proceeds from issuance of Bussman bonds
Premium amortized to January 2, 20X7:
($10,000 / 10) x 6
Book value of bonds at constructive retirement
Price paid for Bussman bonds by Topp
Gain on constructive retirement of Bussman's bonds
8-49
$1,010,000
(6,000)
$1,004,000
(980,000)
$ 24,000
Chapter 08 - Intercompany Indebtedness
d.
Income to noncontrolling interest, 20X7:
Bussman's 20X7 net income
Add: 20X6 intercompany profit realized in 20X7
Constructive gain on retirement of bonds
Less: Unrealized intercompany profit on 20X7 transfer
Portion of constructive gain on bond retirement
recognized currently by separate affiliates
($24,000 / 4 years)
Impairment of goodwill
Subsidiary income to be apportioned
Noncontrolling interest's proportionate share
Income to noncontrolling interest
e.
$100,000
4,500
24,000
(5,400)
(6,000)
(25,000)
$ 92,100
x
0.10
$ 9,210
Total noncontrolling interest, December 31, 20X6:
Bussman's stockholders' equity, December 31, 20X6
Unrealized profit on intercompany sale of inventory
Bussman's realized equity, December 31, 20X6
Differential assigned to land
Differential assigned to goodwill
Noncontrolling interest's proportionate share
Total noncontrolling interest, December 31, 20X6
8-50
$1,250,000
(4,500)
$1,245,500
30,000
50,000
$1,325,500
x
0.10
$ 132,550
Chapter 08 - Intercompany Indebtedness
P8-28 (continued)
f. elimination entries
Book Value Calculations:
NCI
10%
Original Book
Value
+ Net Income
- Dividends
Ending Book Value
+
125,000
10,000
(4,000)
131,000
Topp Co.
90%
=
1,125,000
90,000
(36,000)
1,179,000
Common
Stock
+
Premium on
Common
Stock
500,000
280,000
500,000
280,000
Retained
Earnings
+
470,000
100,000
(40,000)
530,000
Deferred Gain Calculations:
Inventory 20X6 Reversal
Inventory 20X7 Def. GP
Bond Retirement Gain
Amortization of Retirement Gain
Total
Basic elimination entry:
Common Stock
Premium on Common Stock
Retained Earnings
Income from Bussman Corp.
NCI in NI of Bussman Corp.
Dividends declared
Investment in Bussman Corp.
NCI in NA of Bussman Corp.
Total
4,500
(5,400)
24,000
(6,000)
17,100
=
500,000
280,000
470,000
105,390
11,710
Topp Co.'s
Share
4,050
(4,860)
21,600
(5,400)
15,390
+
NCI's share
450
(540)
2,400
(600)
1,710
Original amount invested (100%)
Beginning balance in premium on common stock
Beginning balance in retained earnings
Topp's % of NI - Deferred GP + Reversal + Gain - Amort of Gain
NCI share of NI - Deferred GP + Reversal + Gain - Amort of Gain
40,000
1,194,390
132,710
100% of Bussman Corp.'s dividends declared
Net book value - Deferred GP + Reversal + Gain - Amort of Gain
NCI share of BV - Deferred GP + Reversal + Gain - Amort of Gain
8-51
Chapter 08 - Intercompany Indebtedness
Excess Value (Differential) Calculations:
Beginning balance
Changes
Ending balance
NCI 10%
8,000
(2,500)
5,500
+
Amortized excess value reclassification entry:
Goodwill Impairment Loss
25,000
Income from Bussman Corp.
NCI in NI of Bussman Corp.
22,500
2,500
Excess value (differential) reclassification entry:
Land
30,000
Goodwill
25,000
Investment in Bussman Corp.
NCI in NA of Bussman Corp.
49,500
5,500
Topp Co.
90%
72,000
(22,500)
49,500
8-52
=
Land
30,000
30,000
+
Goodwill
50,000
(25,000)
25,000
Chapter 08 - Intercompany Indebtedness
P8-28 (continued)
20X6 Upstream Transactions
Total
=
Sales
64,000
COGS
44,800
Gross Profit
19,200
Gross Profit %
30.00%
Re-sold
49,000
34,300
14,700
+
Ending Inventory
15,000
10,500
4,500
20X7 Upstream Transactions
Total
=
Sales
78,000
COGS
54,600
Gross Profit
23,400
Gross Profit %
30.00%
Re-sold
60,000
42,000
18,000
+
Ending Inventory
18,000
12,600
5,400
Reversal of last year's deferral:
Investment in Bussman Corp.
NCI in NA of Bussman Corp.
Cost of Goods Sold
4,050
450
4,500
Deferral of 20X7 unrealized profits on inventory transfers
Sales
78,000
Cost of Goods Sold
72,600
Inventory
5,400
Eliminate intercompany of Topp's bonds:
Bonds Payable
200,000
Investment in Topp Bonds
Eliminate intercompany interest
Other Income
Other Expenses
($200,000 x 0.10)
200,000
20,000
20,000
Eliminate accrued interest on intercompany bonds:
Current Payables
5,000
Current Receivables
($200,000 x 0.10) x 1/4 year
5,000
Eliminate intercompany holding of Bussman bonds:
Bonds Payable
1,000,000
Premium on Bonds Payable
3,000
Other Income (Interest)
125,000
Investment in Bussman Bonds
985,000
Gain on Retirement of Bonds
24,000
Other Expenses (Interest)
119,000
$125,000 = ($1,000,0000 x 0.12) + $5,000
$24,000 = $1,004,000 - $980,000
$119,000 = ($1,000,000 x 0.12) - $1,000
Eliminate intercompany dividend payable/receivable:
Current Payables
9,000
Current Receivables
9,000
8-53
Chapter 08 - Intercompany Indebtedness
P8-28 (continued)
g.
Topp
Income Statement
Sales
Other Income
Less: COGS
Less: Depr. and Amort.
Expense
Less: Other Expenses
Goodwill Impairment Loss
Gain on Bond Retirement
Income from Bussman Corp.
Consolidated Net Income
NCI in Net Income
Controlling Interest in NI
Statement of Retained Earnings
Beginning Balance
Net Income
Less: Dividends Declared
Ending Balance
Balance Sheet
Cash
Current Receivables
Inventory
Land
Buildings & Equipment
Less: Accumulated
Depreciation
Investment in Bussman Corp.
Stock
Investment in Bussman Corp.
Bonds
Investment in Topp Bonds
Goodwill
Total Assets
Bussman
Corp.
3,101,000
135,000
790,000
31,000
(2,009,000)
(430,000)
(195,000)
(643,000)
(85,000)
(206,000)
82,890
471,890
100,000
471,890
100,000
3,028,950
471,890
(50,000)
3,450,840
470,000
100,000
(40,000)
530,000
39,500
112,500
29,000
85,100
301,000
1,231,000
2,750,000
348,900
513,000
1,835,000
(1,210,000)
(619,000)
1,239,840
119,000
20,000
105,390
353,390
11,710
365,100
470,000
365,100
835,100
200,000
1,000,000
Premium on Bonds Payable
Common Stock
Premium on Common Stock
Retained Earnings
NCI in NA of Bussman Corp.
1,000,000
700,000
3,450,840
3,000
500,000
280,000
530,000
Total Liabilities & Equity
5,448,840
2,392,000
8-54
(280,000)
(710,000)
(25,000)
24,000
0
481,100
(9,210)
471,890
265,100
40,000
305,100
3,028,950
471,890
(50,000)
3,450,840
30,000
68,500
183,600
644,500
1,774,000
4,585,000
(1,829,000)
200,000
79,000
(2,361,900)
24,000
22,500
262,600
2,500
265,100
5,000
9,000
5,400
985,000
98,000
Consolidated
3,813,000
21,000
4,500
72,600
4,050
2,392,000
Bonds Payable
78,000
125,000
20,000
25,000
5,448,840
Current Payables
Elimination Entries
DR
CR
25,000
59,050
5,000
9,000
1,000,000
200,000
3,000
500,000
280,000
835,100
450
2,832,550
1,194,390
49,500
0
985,000
200,000
0
0
25,000
5,451,600
2,448,290
163,000
0
305,100
132,710
5,500
443,310
1,000,000
700,000
3,450,840
137,760
5,451,600
Chapter 08 - Intercompany Indebtedness
P8-29A Comprehensive Problem: Intercorporate Transfers (Modified Equity Method)
a.
Goodwill as of January 1, 20X7:
Fair value of consideration given by Topp
Fair value of noncontrolling interest at acquisition
Total
Book value of net assets at acquisition
Differential at acquisition
Increase in fair value of land
Goodwill at acquisition
b.
$1,152,000
128,000
$1,280,000
(1,200,000)
$ 80,000
(30,000)
$ 50,000
Computation of balance in investment account, January 1, 20X7:
Bussman stockholders' equity, January 1, 20X7:
Common stock
Premium on common stock
Retained earnings
Stockholders' equity, January 1, 20X7
Topp's ownership share
Book value of shares held by Topp
Differential at January 1, 20X7 ($80,000 x 0.90)
Balance in Investment in Bussman Stock account,
January 1, 20X7
$ 500,000
280,000
470,000
$1,250,000
x
0.90
$1,125,000
72,000
$1,197,000
Computation of balance in investment account, December 31, 20X7:
(not required)
Balance in Investment in Bussman Stock account,
January 1, 20X7
Add: Income from subsidiary, 20X7
Less: Dividends received ($40,000 x 0.90)
Balance in Investment in Bussman Stock account,
December 31, 20X7
c.
$1,197,000
90,000
(36,000)
$1,251,000
Gain on constructive retirement of Bussman's bonds:
Original proceeds from issuance of Bussman bonds
Premium amortized to January 2, 20X7:
($10,000 / 10) x 6
Book value of bonds at constructive retirement
Price paid for Bussman bonds by Topp
Gain on constructive retirement of Bussman's bonds
8-55
$1,010,000
(6,000)
$1,004,000
(980,000)
$ 24,000
Chapter 08 - Intercompany Indebtedness
P8-29A (continued)
d.
Income to noncontrolling interest, 20X7:
Bussman's 20X7 net income
Add: 20X6 intercompany profit realized in 20X7
Constructive gain on retirement of bonds
Less: Unrealized intercompany profit on 20X7 transfer
Portion of constructive gain on bond retirement
recognized currently by separate affiliates
($24,000 / 4 years)
Impairment of goodwill
Subsidiary income to be apportioned
Noncontrolling interest's proportionate share
Income to noncontrolling interest
e.
$100,000
4,500
24,000
(5,400)
(6,000)
(25,000)
$ 92,100
x
0.10
$ 9,210
Total noncontrolling interest, December 31, 20X6:
Bussman's stockholders' equity, December 31, 20X6
Unrealized profit on intercompany sale of inventory
Bussman's realized equity, December 31, 20X6
Differential assigned to land
Differential assigned to goodwill
Noncontrolling interest's proportionate share
Total noncontrolling interest, December 31, 20X6
8-56
$1,250,000
(4,500)
$1,245,500
30,000
50,000
$1,325,500
x
0.10
$ 132,550
Chapter 08 - Intercompany Indebtedness
P8-29A (continued)
f. Elimination entries:
Book Value Calculations:
NCI
10%
Original Book
Value
+ Net Income
- Dividends
Ending Book Value
+
125,000
10,000
(4,000)
131,000
Topp Co.
90%
=
1,125,000
90,000
(36,000)
1,179,000
Common
Stock
+
Premium on
Common
Stock
500,000
280,000
500,000
280,000
Retained
Earnings
+
470,000
100,000
(40,000)
530,000
Deferred Gain Calculations:
Inventory 20X6 Reversal
Inventory 20X7 Def. GP
Bond Retirement Gain
Amortization of Retirement Gain
Total
Basic elimination entry:
Common Stock
Premium on Common Stock
Retained Earnings
Income from Bussman Corp.
NCI in NI of Bussman Corp.
Dividends declared
Investment in Bussman Corp.
NCI in NA of Bussman Corp.
Total
4,500
(5,400)
24,000
(6,000)
17,100
Topp Co.'s
Share
4,050
(4,860)
21,600
(5,400)
15,390
=
500,000
280,000
470,000
90,000
11,710
NCI's share
450
(540)
2,400
(600)
1,710
Original amount invested (100%)
Beginning balance in premium on common stock
Beginning balance in retained earnings
Topp's % of NI
NCI share of NI - Deferred GP + Reversal + Gain - Amort of Gain
40,000
1,179,000
132,710
Excess value (differential) reclassification entry:
Land
30,000
Goodwill
50,000
Investment in Bussman Corp.
NCI in NA of Bussman Corp.
72,000
8,000
Impairment Loss
Goodwill Impairment Loss
Goodwill
25,000
NCI's portion of impairment loss
NCI in NA of Bussman Corp.
NCI in NI of Bussman Corp.
+
25,000
2,500
2,500
8-57
100% of Bussman Corp.'s dividends declared
Net book value
NCI share of BV - Deferred GP + Reversal + Gain - Amort of Gain
Chapter 08 - Intercompany Indebtedness
P8-29A (continued)
20X6 Upstream Transactions
Total
=
Sales
64,000
COGS
44,800
Gross Profit
19,200
Gross Profit %
30.00%
Re-sold
49,000
34,300
14,700
+
Ending Inventory
15,000
10,500
4,500
20X7 Upstream Transactions
Total
=
Sales
78,000
COGS
54,600
Gross Profit
23,400
Gross Profit %
30.00%
Re-sold
60,000
42,000
18,000
+
Ending Inventory
18,000
12,600
5,400
Reversal of last year's deferral:
Retained Earnings
NCI in NA of Bussman Corp.
Cost of Goods Sold
4,050
450
4,500
Deferral of 20X7 unrealized profits on inventory transfers
Sales
78,000
Cost of Goods Sold
72,600
Inventory
5,400
Eliminate intercompany of Topp's bonds:
Bonds Payable
200,000
Investment in Topp Bonds
Eliminate intercompany interest
Other Income
Other Expenses
($200,000 x 0.10)
200,000
20,000
20,000
Eliminate accrued interest on intercompany bonds:
Current Payables
5,000
Current Receivables
5,000
($200,000 x 0.10) x 1/4 year
Eliminate intercompany holding of Bussman bonds:
Bonds Payable
1,000,000
Premium on Bonds Payable
3,000
Other Income (Interest)
125,000
Investment in Bussman Bonds
985,000
Gain on Retirement of Bonds
24,000
Other Expenses (Interest)
119,000
$125,000 = ($1,000,0000 x 0.12) + $5,000
$24,000 = $1,004,000 - $980,000
$119,000 = ($1,000,000 x 0.12) - $1,000
Eliminate intercompany dividend payable/receivable:
Current Payables
9,000
Current Receivables
9,000
8-58
Chapter 08 - Intercompany Indebtedness
P8-29A (continued)
Topp
Income Statement
Sales
Other Income
Less: COGS
Less: Depr. and Amort.
Expense
Less: Other Expenses
Bussman
Corp.
3,101,000
135,000
790,000
31,000
(2,009,000)
(430,000)
(195,000)
(643,000)
(85,000)
(206,000)
Elimination Entries
DR
CR
78,000
125,000
20,000
Consolidated
3,813,000
21,000
4,500
72,600
119,000
20,000
(280,000)
(710,000)
Goodwill Impairment Loss
Gain on Bond Retirement
Income from Bussman Corp.
Consolidated Net Income
90,000
479,000
100,000
90,000
338,000
240,100
(25,000)
24,000
0
481,100
NCI in Net Income
Controlling Interest in NI
479,000
100,000
11,710
349,710
2,500
242,600
(9,210)
471,890
Statement of Retained Earnings
Beginning Balance
3,033,000
470,000
Net Income
Less: Dividends Declared
Ending Balance
479,000
(50,000)
3,462,000
100,000
(40,000)
530,000
39,500
112,500
29,000
85,100
301,000
1,231,000
2,750,000
348,900
513,000
1,835,000
(1,210,000)
(619,000)
Balance Sheet
Cash
Current Receivables
Inventory
Land
Buildings & Equipment
Less: Accumulated
Depreciation
Investment in Bussman Corp.
Stock
Investment in Bussman Corp.
Bonds
Investment in Topp Bonds
Goodwill
Total Assets
25,000
(2,361,900)
24,000
79,000
200,000
1,000,000
Premium on Bonds Payable
Common Stock
Premium on Common Stock
Retained Earnings
NCI in NA of Bussman Corp.
1,000,000
700,000
3,462,000
3,000
500,000
280,000
530,000
Total Liabilities & Equity
5,460,000
2,392,000
8-59
242,600
40,000
282,600
30,000
471,890
(50,000)
3,450,840
68,500
183,600
644,500
1,774,000
4,585,000
(1,829,000)
200,000
98,000
3,028,950
5,000
9,000
5,400
985,000
2,392,000
Bonds Payable
823,760
1,251,000
5,460,000
Current Payables
470,000
4,050
349,710
50,000
80,000
5,000
9,000
1,000,000
200,000
3,000
500,000
280,000
823,760
450
2,500
2,823,710
1,179,000
72,000
0
985,000
200,000
25,000
2,480,400
0
0
25,000
5,451,600
163,000
0
282,600
132,710
8,000
423,310
1,000,000
700,000
3,450,840
137,760
5,451,600
Chapter 08 - Intercompany Indebtedness
P8-30A Cost Method (This problem was incorrectly listed as P8-29A)
a. Journal entry recorded by Bennet Corporation:
Cash
6,000
Dividend Income
6,000
Record dividend from Stone Container:
$10,000 x 0.60
b. Eliminating entries, December 31, 20X4:
Basic elimination entry
Common stock
Retained earnings
Investment in Stone Cont.
Co.
NCI in NA of Stone Cont.
Co.
Dividend elimination entry:
Dividend Income
NCI in NI of Stone Cont. Co.
Dividend declared
Assign undistributed income to NCI
NCI in NI of Stone Cont. Co.
Retained Earnings
NCI in NA of Stone Cont.
Co.
100,000
25,000
75,000
50,000
6,000
4,000
10,000
16,400
18,000
34,400
Bond Elimination Entry:
Bonds Payable
100,000
Retained Earnings
4,200
NCI in NA of Stone Cont. Co.
2,800
Interest Income
8,000
Investment in Stone Cont. Bonds
Interest Expense
106,000
9,000
Computation of 20X3 constructive loss on bond retirement
Bennett's Bond investment, December 31, 20X4
Amortization of premium in 20X4:
Interest income based on par value
Interest income recorded by Bennett
Amortization of premium
Purchase price paid by Bennett,
December 31, 20X3
Bond liability reported by Stone
Container, December 31, 20X3
Constructive loss on bond retirement
8-60
$106,000
$9,000
(8,000)
1,000
$107,000
(100,000)
$ 7,000
Chapter 08 - Intercompany Indebtedness
P8-29A (continued)
c.
Bennett
Corp.
Income Statement
Sales
Interest Income
Less: Interest Expense
Less: Other Expenses
Dividend Income
Consolidated Net Income
NCI in Net Income
Stone
Cont.
Co.
450,000
8,000
(20,000)
(368,600)
6,000
75,400
(18,000)
(182,000)
75,400
50,000
Statement of Retained Earnings
Beginning Balance
187,200
70,000
Controlling Interest in NI
Elimination Entries
DR
CR
250,000
8,000
50,000
Net Income
Less: Dividends Declared
Ending Balance
75,400
(40,000)
222,600
50,000
(10,000)
110,000
Balance Sheet
Cash
Accounts Receivable
Inventory
Other Assets
Investment in Stone Bonds
Investment in Stone Stock
Total Assets
61,600
100,000
120,000
340,000
106,000
75,000
802,600
20,000
80,000
110,000
250,000
Accounts Payable
Bonds Payable
Common Stock
Retained Earnings
NCI in NA of Stone Cont.
80,000
200,000
300,000
222,600
50,000
200,000
100,000
110,000
Total Liabilities & Equity
802,600
460,000
460,000
8-61
9,000
6,000
14,000
4,000
16,400
34,400
25,000
18,000
4,200
34,400
81,600
0
100,000
100,000
81,600
2,800
284,400
9,000
9,000
Consolidated
700,000
0
(29,000)
(550,600)
0
120,400
(20,400)
100,000
210,000
9,000
10,000
19,000
100,000
(40,000)
270,000
106,000
75,000
181,000
81,600
180,000
230,000
590,000
0
0
1,081,600
19,000
50,000
34,400
103,400
130,000
300,000
300,000
270,000
81,600
1,081,600
Similar
PDF
PDF
Target: To know number bonds to 10.
Target: To know number bonds to 10.
number bonds to 10 em
number bonds to 10 em