E5-12 Consolidation after One Year of Ownership

							E5-12 Consolidation after One Year of Ownership

a.    Eliminating entries, January 1, 20X2:

     E(1)   Common Stock — Lowe Corporation             120,000
            Retained Earnings, January 1                 80,000
            Differential                                 30,000
               Investment in Lowe Corporation Stock                190,000
               Noncontrolling Interest                              40,000
             Eliminate investment balance.


            Computation of differential

            Purchase Price                             $190,000
            Underlying book value ($200,000 x .80)     (160,000)
            Differential                               $ 30,000


     E(2)   Buildings and Equipment                      25,600
            Goodwill                                      4,400
               Differential                                         30,000
             Assign differential:
             $25,600 = $32,000 x .80
             $4,400 = $30,000 - $25,600


b. Eliminating entries, December 31, 20X2:

     E(1)   Income from Subsidiary                       28,800
               Investment in Lowe Corporation Stock                 28,800
             Eliminate income from subsidiary.


            Computation of income from subsidiary

            Reported net income of Lowe                 $40,000
            Proportion of stock acquired                x    .80
            Income before amortizing differential       $32,000
            Amortization of differential assigned to
             buildings and equipment ($25,600 / 8)       (3,200)
            Income from subsidiary for 20X2             $28,800