Exam 9: Indirect and Mutual Holdings

Parent stock that is held by the subsidiary is considered outstanding stock and should be reflected as such on the consolidated balance sheet.

On January 1,2014,Peabody Corporation acquired a 90% interest in Salisbury Company for $270,000 when Salisbury's stockholders' equity was $300,000; with Common stock $200,000 and Retained earnings $100,000. On January 1,2014,Salisbury purchased a 10% interest in Peabody for $70,000 when Peabody's total stockholders' equity was $700,000; with Common stock $500,000 and Retained earnings $200,000. The following data was available for the year ending December 31,2014: Peabody Company Salisbury Company Net income \5 0,000 \3 0,000 Dividends 0 0 Use the conventional approach to account for the mutually-held stock.Assume there were no book value/fair value differentials for each investment.The separate net incomes do not include investment income. Required: 1.Prepare the journal entry for Peabody on January 1,2014. 2.Prepare the journal entry for Salisbury on January 1,2014. 3.Prepare the journal entry to record the constructive retirement of 10% of Peabody's outstanding stock due to Salisbury's purchase of Peabody's stock. 4.Determine the incomes of Peabody and Salisbury on a consolidated basis with mutual income for 2014 using simultaneous equations. 5.What is controlling interest share of consolidated net income and noncontrolling interest shares for 2014?

Use the following information to answer the question(s) below. Paint Corporation owns 82% of Achille Corporation and Achille Corporation owns 80% of Badrack Corporation. For the current year, the separate net incomes (excluding investment income) of Paint, Achille, and Badrack are $120,000, $100,000, and $50,000, respectively. The cost of each investment was equal to the book value of the investment, which was also equal to the fair value. -Noncontrolling interest share for Badrack is

Indirect holdings are investments that enable the investor to control or significantly influence the decisions of an investee not directly owned through an investee that is indirectly owned.

Paglia Corporation owns 80% of Aburn Corporation and has separate net income of $200,000 for 2013.Aburn Corporation has separate net income of $100,000 and owns 70% of the outstanding stock of Badley Corporation.Badley Corporation has separate net income of $80,000.(Separate net incomes exclude investment income.)The cost of each investment was equal to book value and fair value.The controlling interest share of consolidated net income for 2013 is

The conventional approach is appropriate for recording mutually held stock by subsidiaries.

On January 1,2014,Wrobel Company acquired a 90 percent interest in Sally Company for $270,000.On January 1,2014,Sally's total stockholders' equity was $300,000.The fair value and book value of Sally's individual assets and liabilities were equal. On January 2,2014,Sally Company acquired a 10 percent interest in Wrobel Company for $70,000.On January 2,2014,Wrobel's total stockholders' equity was $700,000.The fair value and book value of Wrobel's individual assets and liabilities were equal. For the year ending December 31,2014,the following data is available: Netincome Dividends Wrobel Company \ 50,000 \ 0 Sally Company \ 30,000 \ 0 The treasury stock method is used to account for the mutual stock holdings between Wrobel and Sally.The separate net incomes do not include investment income. A partial working paper is available for the year ending December 31,2014. Required: Prepare the elimination entries for the year ending December 31,2014. Do not enter them onto the worksheet.Instead,list them below.

Raymond Company owns 90% of Rachel Company.Rachel Company owns 10% of Raymond Company.The treasury stock method is used.On the books of Rachel Company,we maintain the Investment in Raymond using the ________ method.The ending balance in Investment in Raymond is ________ stockholders' equity in the consolidated balance sheet.

Indirect holdings called connecting affiliates involves a parent and two subsidiaries.

Padhy Corporation owns 80% of Abrams Corporation,Abrams Corporation owns 60% of Bacud Corporation,and Bacud Corporation owns 10% of Abrams Corporation.The separate net incomes (excluding investment income)of Padhy,Abrams,and Bacud are $300,000,$100,000,and $80,000,respectively.Assume the investments were acquired at a cost equal to the book value of each investment,which also equals the fair value. Required: 1.Calculate revised net incomes for Padhy,Abrams and Bacud by using the conventional method. 2.Calculate the controlling interest share of consolidated net income and the noncontrolling interest shares for Padhy Corporation and its subsidiaries.Use the conventional method for your solution.