The accounts of Pyle Company and its subsidiary, Stern Company, are summarized below as of 12/11 Current Assets -Pyle $600000; Stern $320000 Investment in Stern Company-Pyle $480000 Other Assets- Pyle $1180000; Stern $668000 Dividends Declared 11/1- Pyle $80000; Stern $60000 Liabilities- Pyle $190000; Stern $90000 Common Stock $5 par- Pyle $500000; Stern $300000 Other Contributed Capital- Pyle $230000; Stern $180000 1/1 Retained Earnings- Pyle $1200000; Stern $292000 Net Income- Pyle $220000; Stern $186000 Pyle company made the following open market purchase and sale of Stern Company common stock: 1/09 purchase 51000 shares, cost $510000; 4/11 sold 3000 share, proceeds, $100000. The book value of Stern Company’s net assets on 1/09, $600000 (including retained earnings of $120000) approximated the fair value of those net assets. Subsequent changes in book value of the net assets are entirely attributable to earnings of Stern Company. Stern Company earns its income evenly throughout the year. Prepare a consolidated financial statements workpaper as of 12/11. Begin the income statement section of the workpaper with “Net Income Before Dividend Income: which is $172000 and $186000 for Pyle Company and Stern Company
PYLE COMPANY AND SUBSIDIARY
Consolidated Statements Workpaper
For the Year Ended December 31, 2011
| Pyle | Stern | Eliminations | Noncontrolling | Consolidated | |||||||||||
| Company | Company | Dr. | Cr. | Interest | Balances | ||||||||||
| Income Statement | |||||||||||||||
| Income before Dividend Income* | $172,000 | $186,000 | $358,000 | ||||||||||||
| Dividend Income | 48,000 | (1) 48,000 | |||||||||||||
| Net/Consolidated Income | 220,000 | 186,000 | 358,000 | ||||||||||||
| Subsidiary Income Sold | (3) 2,325 | 2,325 | |||||||||||||
| Noncontrolling Interest in Income (.2 ´ $186,000) | 37,200 | (37,200) | |||||||||||||
| Net Income to Retained Earnings | $220,000 | $186,000 | 48,000 | 2,325 | 37,200 | $323,125 | |||||||||
| Retained Earnings Statement | |||||||||||||||
| Retained Earnings, 1/1: | |||||||||||||||
| Pyle Company | $1,200,000 | (2) 8,600 | |||||||||||||
| (4)137,600 | 1,346,200 | ||||||||||||||
| Stern Company | 292,000 | (5) 292,000 | |||||||||||||
| Net Income from above | 220,000 | 186,000 | 48,000 | 2,325 | 37,200 | 323,125 | |||||||||
| Dividends Declared: | |||||||||||||||
| Pyle Company | (80,000) | (80,000) | |||||||||||||
| Stern Company | (60,000) | (1) 48,000 | (12,000) | ||||||||||||
| 12/31 Retained Earnings to Balance Sheet | $1,340,000 | $418,000 | $340,000 | $196,525 | $25,200 | $1,589,325 | |||||||||
*Reported Net Income $220,000
Less: Dividend Income (.8 ´ $60,000) (48,000)
$172,000
| Pyle | Stern | Eliminations | Noncontrolling | Consolidated | |||||||
| Company | Company | Dr. | Cr. | Interest | Balances | ||||||
| Balance Sheet | |||||||||||
| Current Assets | $600,000 | $320,000 | $920,000 | ||||||||
| Investment in Stern Company | 480,000 | (4) 137,600 | (5) 617,600 | ||||||||
| Other Assets | 1,180,000 | 668,000 | 1,848,000 | ||||||||
| Total | $2,260,000 | $988,000 | $2,768,000 | ||||||||
| Liabilities | $190,000 | $90,000 | $280,000 | ||||||||
| Common Stock: | |||||||||||
| Pyle Company | 500,000 | 500,000 | |||||||||
| Stern Company | 300,000 | (5) 300,000 | |||||||||
| Other Contributed Capital | |||||||||||
| Pyle Company | 230,000 | (2) 8,600 | 219,075 | ||||||||
| (3) 2,325 | |||||||||||
| Stern Company | 180,000 | (5) 180,000 | |||||||||
| Retained Earnings from above | 1,340,000 | 418,000 | 340,000 | 196,525 | 25,200 | 1,589,325 | |||||
| 1/1 Noncontrolling Interest in Net Assets | (5) 154,400 | 154,400 | |||||||||
| 12/31 Noncontrolling Interest | $179,600 | 179,600 | |||||||||
| Total | $2,260,000 | $988,000 | $968,525 | $968,525 | $2,768,000 | ||||||
(1) To eliminate intercompany dividends. (80% of $60,000)
(2) To adjust additional contributed capital for portion included in income in prior years 3/51 ´ [.85 ´ ($772,000 – $600,000)]
(3) To adjust additional contributed capital for current year’s income sold to noncontrolling stockholders 3/51 ´ (3/12 ´ $186,000 ´ .85)
(4) To establish reciprocity/convert to equity on shares retained (.8 ´ ($292,000 – $120,000))
(5) To eliminate investment account and create noncontrolling interest account. $510,000/.85 x.2 + ($292,000 – $120,000) x .2
Verification of Controlling interest in Consolidated Net Income:
Stern company’s reported income $186,000
Allocated to noncontrolling interest:
First three months ($46,500 ´ .15) $6,975
Last nine months ($139,500 ´ .2) 27,900 34,875
Allocated to controlling interest (Pyle Company) 151,125
Pyle Company’s Income 172,000
Controlling interest in Consolidated Net Income
On Pyle’s books
Cash 100,000
Investment in S Company (3,000/51,000 × $510,000) 30,000
Additional Contributed Capital—Pyle Company 70,000
Cost of Shares (3,000/51,000 × $510,000) $30,000
Plus: Undistributed Income:
(A) Change in Retained Earnings from the date of
acquisition (1/2/09) to the beginning of the year
(1/1/11)
($292,000 – $120,000) $172,000
Ownership percentage sold 5% 8,600
(B) Earnings from beginning of current year to the
the date of sale (1/1/11 to 4/1/11)
($186,000/4) 46,500
Ownership percentage sold 5% 2,325
Adjusted cost of shares sold $40,925
Selling price of shares $100,000
Adjusted cost of shares sold 40,925
Additional paid in capital – Pyle Company $59,075
Paid in capital recorded on Pyle’s books 70,000
Reduction in paid in capital needed 10,925
(1) Dividend Income 48,000
Dividend Declared—Stern Company 48,000
(2) Additional Contributed Capital—Pyle Company 8,600
1/1 Retained Earnings— Pyle Company 8,600
(Consolidated Retained Earnings)
(3) Additional Contributed Capital— Pyle Company 2,325
Subsidiary Income Sold 2,325
(4) Investment in Stern Company (.8 ´ ($292,000 – $120,000)) 137,600
1/1 Retained Earnings— Pyle Company 137,600
To establish reciprocity on shares still owned at year-end
(5) Common Stock— Stern Company 300,000
Other Contributed Capital – Stern Company 180,000
1/1 Retained Earnings— Stern Company 292,000
Investment in S Company (72%)
($510,000 – $30,000 + $137,600) 617,600
Noncontrolling Interest
[25,000 + 28% (185,000 – 120,000) + 45,000] 154,400
