E7-10

1. Cost paid to retire 20% of Noa DD’s bonds $185,000

Book value of bonds retired (20% x $800,000) $160,000

Constructive loss on bond retirement $25,000

90% of Noa DD net income (90% x $400,000) $360,000

90% of Constructive loss on bond retirement ($22,500)

(90% x $25,000)

90% of piecemeal recognition of constructive loss $4,500

(90 % x $25,000 / 5)

Income from Noa DD $342,000

2. 10% of Noa DD net income (10% x $400,000) $40,000

10% of Constructive loss on bond retirement ($2,500)

(10% x $25,000)

10% of piecemeal recognition of constructive loss $ 500

(10 % x $25,000 / 5)

Noncontrolling interest share $38,000

Check:

Noncontrolling interest share:

Income from Noa DD x 10% / 90% $38,000

P7-3

Preliminary computations:

90% of Merry SA’s net income $720,000

(90% x ($3,700,000 +$200,000 - $2,400,000 - $700,000))

Unrealized profit from ending inventory ($100,000)

(100% x $100,000)

Unrealized gain on sale of land ($180,000)

(90% x ($1,000,000 - $800,000)

Unrealized gain on sale of equipment ($100,000)

(100% x $100,000)
Constructive gain on bond retirement $ 60,000

(($1,000,000 / 2) - $440,000))

Piecemeal recognition of constructive gain ($ 20,000)

($60,000 / 3)

Income from Merry SA’s $380,000

10% of Merry SA’s net income $ 80,000

(10% x ($3,700,000 +$200,000 - $2,400,000 - $700,000))

Unrealized gain on sale of land ($ 20,000)

(10% x ($1,000,000 - $800,000)

Noncontrolling interest share: $ 60,000

Investment in Merry SA before adjustment $3,600,000

Add: Income from Merry SA $ 380,000

Adjusted investment in Merry SA $3,980,000

Unadjusted ending investment in Merry SA $3,600,000

Add:Dividends ($100,000 x 90%) $ 90,000

Beginning investment in Merry SA $3,690,000

Implied fair value of Merry SA ($3,690,000 / 90%) $4,100,000

Beginning Merry SA’s stockholders’ equity $4,085,000

($2,000,000 + $2,085,000)

Goodwill $ 15,000

Thanos SA and subsidery consolidation workpaper for the year ended December 31, 2014 (000)

Adjustments and eliminations Consolidated

description Thanos SA Merry SA
statements
dr cr
$
sales $ 800.00 $ 7,700.00
4,800.00 $3,700.00

Income from $
$ 380.00
merry 380.00

Gain on sale of $
$ 200.00
land 200.00
Gain on sale of $
$ 100.00
equipment 100.00

$
Interest income $ 70.00
70.00

Gain on
$
retirement of $ 60.00
40.00
bonds

-$ $
Cost of sales $ 100.00 -$ 4,500.00
2,800.00 $2,400.00 800.00
-$ $
Interest expense -$ 50.00
100.00 50.00

-$ -$
Other expenses -$ 1,800.00
1,100.00 700.00

Noncontrolling
$ 60.00 -$ 60.00
interest share

Controlling share $ $
$ 1,350.00
of net income 1,350.00 800.00

Retained
Earnings
Statement

Retained
$
earnings - $ 3,380.00
3,380.00
Thanos SA

Retained
earnings - Merry $2,085.00
$2,085.00
SA

Controlling share $ $
$ 1,350.00
of net income 1,350.00 800.00

-$ -$ $
Dividends -$ 300.00
300.00 100.00 90.00
Retained
$
earnings - $ 4,430.00
4,430.00 $2,785.00
December 31

Balance Sheet

$ $
Cash $ 1,300.00
700.00 600.00

Accounts $ $
$ 1,400.00
receivable 1,000.00 400.00

Interest $ $
receivable 25.00 25.00

$ $ $
Inventory $ 1,700.00
1,100.00 700.00 100.00
$ $ $
land $ 2,500.00
1,900.00 800.00 200.00
$ $
Equipment-net $ 2,400.00
1,100.00 $1,400.00 100.00
$
Building-net $ 3,400.00
2,000.00 $1,400.00

Investment in $ $
Thanos SA bonds 460.00 460.00

Investment in $ $
Merry SA 3,980.00 290.00

$
3,690.00
goodwill $ 15.00 $ 15.00
$
Total assets $ 12,715.00
11,780.00 $5,785.00

Aacounts $
$ 2,300.00
payable 1,300.00 $1,000.00
$
Interest payable $ 25.00 $ 25.00
50.00

10% bond $
$ 500.00 $ 500.00
payable 1,000.00
 $
Common stock $2,000.00 $ 5,000.00
5,000.00 $2,000.00
Retained $
$ 4,430.00
eranings 4,430.00 $2,785.00
$
11,780.00 $5,785.00

Noncontrolling $
interest jan1 410.00

Noncontrolling $
$ 460.00
interest dec 31 50.00

Total liabilities
$ 12,715.00
and equity