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Semi Elim

The document outlines eliminating entries for consolidating a parent company and subsidiary using the cost method. It includes entries to: 1) eliminate the investment account and recognize non-controlling interest; 2) allocate excess acquisition cost to assets and establish non-controlling interest; and 3) eliminate unrealized profits on intercompany transactions like inventory, sales, dividends, and asset sales. Subsequent years require entries to adjust for earnings/losses since acquisition and recognize non-controlling interest in the subsidiary's net income.

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Michael Arevalo
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0% found this document useful (0 votes)
45 views

Semi Elim

The document outlines eliminating entries for consolidating a parent company and subsidiary using the cost method. It includes entries to: 1) eliminate the investment account and recognize non-controlling interest; 2) allocate excess acquisition cost to assets and establish non-controlling interest; and 3) eliminate unrealized profits on intercompany transactions like inventory, sales, dividends, and asset sales. Subsequent years require entries to adjust for earnings/losses since acquisition and recognize non-controlling interest in the subsidiary's net income.

Uploaded by

Michael Arevalo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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(COST METHOD)

Eliminating entries

(E1) Common stock – Subsidiary 1,000,000

Retained earnings – Subsidiary 500,000

Investment in subsidiary (CI%) 1,125,000

Non-controlling interest (NCI%) 375,000

To eliminate investment account and recognize NCI

(E2) Machinery 60,000

Investment in subsidiary (CI%) 45,000

Non-controlling interest (NCI%) 15,000

To allocate the excess of cost over book value of identifiable assets acquired, with
remainder to goodwill and to establish non-controlling interest (in net assets of subsidiary) on
date of acquisition

(E3) Depreciation expense 20,000

Accumulated depreciation - equipment 20,000

To provide for current year impairment loss and depreciation and amortization on
differences of BV and FV of S identifiable assets and liabilities.

(E4) Dividend income- Parent 37,500

Non-controlling interest 12,500

Dividend paid – Subsidiary 50,000

To eliminate intercompany dividends and NCI share of dividends


(E5) Sales 600,000

Cost of goods sold 600,000

To eliminate intercompany upstream sales

(E7) Cost of goods sold (Ending inventory – Income statement 90,000

Inventory – Balance Sheet 90,000

To defer the upstream sales – unrealized profit in ending inventory until it is sold to
outsiders

(E5) Gain on sale of land 50,000

Land 50,000

To eliminate unrealized intercompany gain on sale of land

(E6) Gain on sale of equipment(SP-BV) 14,000

Equipment (Orig cost- Selling Price) 31,000

Accumulated depreciation 45,000

To eliminate the upstream unrealized gain on sale and restore equipment


to its original cost and accumulated depreciation to its balance

(E7) Accumulated depreciation 2,000

Depreciation expense 2,000

To adjust depreciation on equipment & realize a portion of the


gain thru usage (upstream)
(E9) Non-controlling interest in Net Income of Subsidiary 122,000

Non-controlling interest 122,000

To establish NCI in subsdiary's adjusted NI

Subsequent years

Eliminating entries

(E1) Investment in subsidiary (adjustment x CI%) 420,000

Retained earnings – Parent Company 420,000

To establish reciprocity
*RE beginning of current yr less RE at acquisition date (+) increase, (-), decrease

(E2) Common stock – Subsidiary 1,000,000

Retained earnings – Subsidiary (current year adjusted) 1,060,000

Investment in subsidiary (CI%) 1,545,000

Non-controlling interest (NCI%) 515,000

To eliminate investment account and recognize NCI

(E3) (E2) PPE 60,000

Investment in subsidiary (CI%) 45,000

Non-controlling interest (NCI%) 15,000

To allocate the excess of cost over book value of identifiable assets acquired, with
remainder to goodwill and to establish non-controlling interest (in net assets of subsidiary) on
date of acquisition (SAME AMOUNTS WITH FIRST YEAR)
(E4) Retained earnings – Parent Company beginning (previous year amorti x CI%) 17,000

Non-controlling interest (previous year amorti x NCI%) 3,000

Depreciation expense (equipment and building) 20,000

Accumulated depreciation – equipment 40,000

To provide for current year impairment loss and depreciation and amortization on
differences of BV and FV of S identifiable assets and liabilities.

(E5) Dividend income- Parent 45,000

Non-controlling interest 15,000

Dividend paid – Subsidiary 60,000

To eliminate intercompany dividends and NCI share of dividends

(E6) Sales 900,000

Cost of goods sold 900,000

To eliminate intercompany upstream sales (current year)

(E9) Beginning Retained Earnings – P Company 67,500

Non-controlling interest 22,500

Cost of goods sold (Beginning Inventory- I/S) 90,000

To realized profit in upstream beginning inventory deferred in prior


period

*Last year ending inventory


(E11) Cost of goods sold (Ending inventory – Income statement 120,000

Inventory – Balance Sheet 120,000

To defer the upstream sales – unrealized profit n ending inventory until it is sold to
outsiders (current year)

(E5) Retained earnings – P Company (100%) 50,000

Land 50,000

To eliminate downstream unrealized intercompany gain on sale of land

(E6) Retained earnings – Parent Company beg. 10,500

Non-controlling interest 3,500

Equipment (Orig cost- Selling Price) 31,000

Accumulated depreciation 45,000

To eliminate the upstream unrealized gain on sale and restore equipment


to its original cost and accumulated depreciation to its balance

(E8) Accumulated depreciation (Current and prior year) 4,000

Depreciation expense 2,000

Retained earnings, beg. (prior year dep exp) (CI%) 1,500

Non-controlling interest (prior year dep exp) (NCI%) 500

To adjust depreciation on equipment & realize a portion of the gain


thru usage

(E9) Non-controlling interest in Net Income of Subsidiary xx

Non-controlling interest xx

To establish NCI in subsdiary's adjusted NI


*Sub net income
Less Amortization
Less impairment loss NCI share
Less Unrealized gain in ending inventory (upstream)
Add Realized gain in ending in beginning inventory (upstream)
Less Unrealized gain on Equipment (for first year only; upstream)
Add Realized Gain on Equipment (current year only)
Less unrealized gain on land (upstream)
Year of Sale

(E1) Retained earnings P company xx

Non-controlling Interest beginning xx

Gain on sale of equipment xx

To adjust reported gain on the sale of equipment by P company to


third party (upstream sale)

*Unrealized gain less realized gain since the date of intercompany sale

(E1) Retained earnings P company xx

Gain on sale of equipment xx

To adjust reported gain on the sale of equipment by P company to


third party (downstream)

*Unrealized gain less realized gain since the date of intercompany sale

(E1) Retained earnings – P company xx

Non-controlling interest- beginning xx

Gain on sale of land xx

To adjust reported gain on the sale of land by P company to third


party (upstream)

*Recognize the whole gain as if there is no intercompany sale transaction

(E1) Retained earnings – P company xx

Gain on sale of land xx

To adjust reported gain on the sale of land by P company to third


party (downstream)

*Recognize the whole gain as if there is no intercompany sale transaction

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