Note: This practice assignment accounts for 3 extra points. No point will be given when (1) it is overdue,(2) it is only partially completed, (3) no work is provided, and/or (4) most answer/work is incorrect. Points
will be deducted if part of the answer/work provided is incorrect.
Right Co. owned 80% of the common stock of Left Co. Right had 120,000 shares of $1 par value
common stock outstanding and Left had 50,000 shares of $5 par value common stock outstanding. Left
also had 600 convertible bonds outstanding, each of which is convertible into ten shares of common
stock. The annual interest expense for the bonds was $40,000. Right did not own any of Left’s bonds. In
current year, Right reported income of $450,000 and Left reported income of $300,000. The tax rate is
35%. Calculate the consolidate diluted earnings per share by completing the following questions.
1. What was the Right’s ownership percentage in Left after considering the dilutive securities that Left
issued? Round to 4 decimal places.
Answer:
2. What amount of investment income from Left that Right should include in calculating consolidated
diluted earnings per share?
Answer:
3. What is the consolidated diluted earnings per share that Right will report? Round to 2 decimal places.
Answer:
Note: This practice assignment accounts for 3 extra points. No point will be given when (1) it is overdue, (2) it is
only partially completed, (3) no work is provided, and/or (4) most answer/work is incorrect. Points will be deducted if
part of the answer/work provided is incorrect.
On January 1, Year 1, Silver Oak Company, an 80% owned subsidiary of Clearwood, Inc.
transferred equipment with a 5-year remaining life to Clearwood in exchange for $84,000 cash. At
the date of transfer, Silver Oak’s records carried the equipment at a cost of $120,000 less
accumulated depreciation of $48,000. Straight-line depreciation is used with no salvage value.
Silver Oak reported net income of $28,000 and $32,000 for Year 1 and Year 2, respectively. The
annual excess amortization is $1,500.
Requirements:
(a) Prepare the consolidation entry *TA in Year 2.
Account Title
Debit
Credit
Debit
Credit
(b) Prepare the consolidation entry ED in Year 2.
Account Title
(c) Compute the Clearwood’s share in Silver Oak’s net income for Year 1 and Year 2.
Answer: Year 1:
; Year 2:
(d) Redo (c) but assume that the sale was downstream instead of upstream.
Answer: Year 1:
; Year 2:
Note: This practice assignment accounts for 3 extra points. No point will be given when (1) it is overdue, (2) it is
only partially completed, (3) no work is provided, and/or (4) most answer/work is incorrect. Points will be
deducted if part of the answer/work provided is incorrect.
Taylor held a 70% interest in Spring. Annual excess amortization resulting from the acquisition
was $20,000. Taylor used the equity method to account for its investment. In current year,
Taylor reported net income of $560,000 and dividends of $56,000. Spring Co. earned $140,000
in net income and distributed $14,000 in dividends in current year. On January 1 of current year,
Spring acquired $200,000 of Taylor’s 8%, 10-year bonds. The bonds had originally been issued
three years ago at $175,420, reflecting a 10% effective interest rate. On the date of the bond
purchase, the book value of the bonds payable was $178,658. Spring paid $163,480 based on
a 12% effective interest rate over the remaining life of the bonds. Effective interest method has
been used to amortize any discount or premium.
(a) Complete the partial amortization table for the bonds payable for the current year.
Year
1/1
Cash
Interest
Skipped
Interest
expense
Skipped
Discount
amortized
Skipped
CV of bonds
payable
12/31
(b) Complete the partial amortization table for the investment in bonds for the current year.
Year
1/1
Cash
Interest
NA
Interest
revenue
NA
Discount
amortized
NA
CV of investment
in bonds
12/31
(c) Allocate the subsidiary’s earnings to CI and NCI for the current year.
Answer: CI:
;NCI:
.
(d) Prepare consolidation entry B for the current year.
Account Title
Debit
Credit
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