2. Accounting for Specific Industries – Bank Accounting Pertemuan 11-12
Mata kuliah : F Akuntansi Keuangan Lanjutan II
Tahun : 2010
Accounting for Specific Industries – Bank Accounting Pertemuan 11-12

3. Preacquisition Earnings
Preacquisition earnings or purchased income
is income that was earned by the subsidiary
(in the accounting period of the acquisition)
prior to the acquisition.
Patter Corporation purchases a 90% interest in
Sissy Company on April 1, 2006, for $213,750.

4. Preacquisition Earnings
Income /1-4/1 4/1-12/31 1/1-12/31
Sales $25,000 $75,000 $100,000
Cost of sales and expenses 12, , ,000
Net income $12,500 $37,500 $ 50,000
Dividends $10,000 $15,000 $ 25,000

5. Preacquisition Earnings
Stockholders’ Equity Jan April 1 Dec. 31
Capital stock $200,000 $200,000 $200,000
Retained earnings , , ,000
Stockholders’ equity $235,000 $237,500 $260,000
What is the book value acquired by Patter?
$237,500 × 90% = $213,750 purchase price

6. Preacquisition Earnings
Sales (last three quarters of 2006) $75,000
Expenses (last three quarters) (37,500)
Minority interest (last three quarters) (3,750)
Effect on consolidated net income $33,750

7. Preacquisition Earnings
Sales (full year) $100,000
Expenses (full year) (50,000)
Preacquisition income (11,250)
Minority interest (5,000)
Effect on consolidated net income $ 33,750

8. Preacquisition Dividends
$25,000
$10,000
$15,000
Preacquisition dividends are eliminated
in the consolidation process.

9. Preacquisition Dividends
Patter’s Books
Cash ,500
Investment in Sissy ,500
To record dividends received
$15,000 × 90% = 13,500

10. Consolidation Patter’s Investment 213,750 33,750 234,000 13,500
12/31/2006
Dividends

11. Working Papers December 31, 2006
Adjustments/ Consol-
Patter Sissy Eliminations idated
Sales
Income from Sissy
Expenses
Minority interest expense
($50,000 × 10%)
Preacquisition income
Net income
Retained earnings – Patter
Retained earnings – Sissy
Add: Net income
Dividends
Retained earnings 12/31/06
$300
33.75
(200)
$133.75
$266.25
133.75
(100)
$100
(50)
$ 50
$ 35 50
(25)
$ 60
a 33.75 c
b 11.25
b 35
$400
(250)
(5)
(11.25)
Income Statement
a 13.5
b 9.0
c 2.5

12. Working Papers December 31, 2006
Balance Sheet
Adjustments/ Consol-
Patter Sissy Eliminations idated
Other assets
Investment in Sissy
Capital stock
Retained earnings
Minority interest
$566
234
$800
$500
300
$260
$200 60 a b
b 200 b c
$826
500
300 26

13. Apply consolidation procedures to interim (midyear) acquisitions.
Learning Objective 2
Apply consolidation procedures to
interim (midyear) acquisitions.

14. Piecemeal Acquisitions
Poca Corporation acquires a 90% interest in Sark
Corporation in a series of separate stock purchases
between July1, 2003, and October 1, 2005.

15. Piecemeal Acquisitions
Date /1/03 4/1/04 10/1/05
Interest acquired % % %
Investment cost $ 30 $ 74 $ 81
Equity January
Income for year
Equity at acquisition
Equity December

16. Piecemeal Acquisitions
What is the initial goodwill from
each of the three acquisitions?
$125 × 20% = $25
$30 – $25 = $5
2003
2004
$160× 40% = $64
$74 – $64 = $10

17. Piecemeal Acquisitions
$220 × 30% = $66
$81 – $66 = $15
2005
At December 31, 2005, Poca’s investment
in Sark account balance is $237,000.
This consists of $185,000 total
cost plus income of $52,000.

18. Working Paper Entries: 2005
a Income from Sark ,000
Investment in Sark ,000
To eliminate investment income and return
investment account to its beginning-of-the-
period balance plus the $81,000 new investment

19. Working Paper Entries: 2005
b Preacquisition Income ,000
Retained Earnings – Sark ,000
Capital Stock – Sark ,000
Goodwill ,000
Investment in Sark ,000
Minority Interest ,000
To eliminate investment in Sark and Sark’s equity
balances, and enter preacquisition income, goodwill,
and beginning-of-the-period minority interest

20. Working Paper Entries: 2005
c Minority Interest Expense 4,000
Minority Interest ,000
To record minority interest in Sark’s net income

21. Sale of Ownership Interests
Sergio Corporation is a 90%-owned
subsidiary of Pablo Corporation.
January 1, 2007: Pablo’s investment
in Sergio equals $288,000.
Sergio’s stockholders’ equity on this
date consists of $200,000 capital stock
and $100,000 retained earnings.

22. Sale of Ownership Interests
Did Pablo acquire goodwill?
Yes!
$300,000 × 90% = $270,000
$288,000 – $270,000 = $18,000

23. Sale of Ownership Interests
During 2007, Sergio reports income of $36,000.
Sergio pays dividends of $20,000 on July 1.

24. Sale of Interest at the Beginning of the Period
Pablo sells a 10% interest in Sergio
(one-ninth of its holdings) on
January 1, 2007 for $40,000.
$288,000 ÷ 9 = $32,000
$18,000 ÷ 9 = $2,000

25. Sale of Interest at the Beginning of the Period
Pablo’s Investment
288,000
28,800
268,800
32,000
16,000
Dividends
12/31/2007
Cash
Gain
Income from S
40,000
16,000
8,000
28,800

26. Working Paper Entries: 2007
a Income from Sergio 28,800
Dividends – Sergio ,000
Investment in Sergio ,800
To eliminate income and dividends from
Sergio and return the investment account
to its beginning-of-the-period balance
after the sale of the 10% interest

27. Working Paper Entries: 2007
b Capital Stock – Sergio 200,000
Retained Earnings – Sergio 100,000
Goodwill ,000
Investment in Sergio ,000
Minority Interest (20%) ,000
To eliminate reciprocal investment and equity
balances, and to record goodwill and
beginning minority interest

28. Working Paper Entries: 2007
c Minority Interest Expense 7,200
Dividends ,000
Minority Interest ,200
To enter minority interest share of subsidiary
income and dividends

29. Working Papers December 31, 2007
Adjustments/ Consol-
Pablo Sergio Eliminations idated
Sales
Income from Sergio
Gain on sale
Expenses
Minority interest expense
($36,000 × 10%)
Net income
Retained earnings – Pablo
Retained earnings – Sergio
Add: Net income
Dividends
Retained earnings 12/31/07
$600
28.8 8
(508.8)
$128
$210
128
(80)
$258
$136
(100)
$ 36
$100 36
(20)
$116 a c
b 100
a 16
c 4
$736
(608.8)
(7.2)
Income Statement

30. Working Papers December 31, 2007
Balance Sheet
Adjustments/ Consol-
Pablo Sergio Eliminations idated
Other assets
Investment in Sergio
Goodwill
Liabilities
Capital stock
Retained earnings
Minority interest
$639.2
268.8
$908
$150
500
258
$350
$ 34
200
116 a
b 256
b 16
b 200
b 60 c $ 16
$1,005.2
$ 184
500
258
63.2

31. Sale of Interest During an Accounting Period
Main issues
Obtain proper book value for shares sold.
Calculate the remainder for unamortized
components of the investment account.

32. Sale of Interest During an Accounting Period
Pablo sells the 10% interest in Sergio
on April 1, 2007, for $40,000.
The sale may be recorded as of April 1
or, as an expedient, as of January 1.

33. Sale of Interest During an Accounting Period
Assume the sale is recorded on April 1, 2007.
Selling price of 10% interest $40,000
Less: Book value of interest sold:
Investment balance January 1 $288,000
Equity in income
$36,000 × 1/4 year × 90% ,100
Portion of investment sold $296,100
× 1/ ,900
Gain $ 7,100

34. Sale of Interest During an Accounting Period
$36,000 × 1/4 year × 90% = $ 8,100
$36,000 × 3/4 year × 80% = 21,600
$29,700
Equity Income
$29,700 – $16,000 = $13,700

35. Sale of Interest During an Accounting Period
Pablo’s Investment
288,000
8,100
21,600
268,800
32,900
16,000
Dividends
12/31/2007
Cash
Gain
Income from S
40,000
16,000
7,100
8,100
21,600

36. Changes in Ownership Interests from Subsidiary Stock Transactions
Subsidiary stock issuances provide
a means of expanding operations
through external financing.

37. Sale of Additional Shares by a Subsidiary
Purdy Corporation owns an 80% interest
in Stroh Corporation.
Purdy’s investment in Stroh is $180,000 on
January 1, 2007, equal to 80% of Stroh’s $200,000
stockholders’ equity plus $20,000 goodwill.

38. Sale of Additional Shares by a Subsidiary
$200,000 × 80% = $160,000
$160,000 ÷ $20 = 8,000 shares

39. Sale of Additional Shares by a Subsidiary
Stroh’s equity January 1, 2007
Capital stock, $10 par $100,000
Additional paid-in capital ,000
Retained earnings ,000
Total shareholders’ equity $200,000

40. Subsidiary Sells Shares to Parent
Stroh sells an additional 2,000 shares to Purdy at
book value of $20 per share on January 2, 2007.
January 1 before sale: 8,000 ÷ 10,000 = 80%
January 2 after sale: 10,000 ÷ 12,000 = 831/3%

41. Subsidiary Sells Shares to Parent
January January 2
Before Sale After Sale
Stroh’s stockholders’ equity $200,000 $240,000
Purdy’s interest % /3%
Purdy’s equity in Stroh $160,000 $200,000
Goodwill , ,000
Investment in Stroh balance $180,000 $220,000

42. Subsidiary Sells Shares to Parent
If Stroh sells the additional shares at $35 per share.
Price paid by Purdy (2,000 × $35) $70,000
Book value acquired:
Underlying book value after purchase
($200,000 + $70,000) × 831/3% $225,000
Underlying book value before purchase
($200,000 × 80%) ,000
Book value acquired ,000
Excess cost over book value $ 5,000

43. Subsidiary Sells Shares to Outside Entity
Sale at $ Sale at $35
Stroh’s stockholders’ equity $240,000 $270,000
Purdy’s interest /3% /3%
Purdy’s equity in Stroh
after issuance $160,000 $180,000
before issuance , ,000
Increase in Purdy’s
equity in Stroh $ 20,000

44. Record subsidiary/investee stock issuances and treasury
stock transactions.

45. Treasury Stock Transactions by a Subsidiary
The acquisition of treasury stock by a
subsidiary decreases subsidiary equity
and subsidiary shares outstanding.
If the subsidiary acquires treasury stock
from minority shareholders at book
value, no change in the parent’s share
in the subsidiary equity results.

46. Treasury Stock Transactions by a Subsidiary
Shelly is an 80% subsidiary of Pointer Corporation.
Shelly has 10,000 shares of common stock
outstanding at December 31, 2007.
On January 1, 2008, Shelly purchased 400
shares of its own stock from minority stockholders.

47. Treasury Stock Transactions by a Subsidiary
Shelly’s equity before purchase
of 400 shares of treasury stock
Capital stock, $10 par $100,000
Retained earnings ,000
Total equity $200,000
Pointer’s share of Shelly’s
book value (80%) $160,000

48. Treasury Stock Transactions by a Subsidiary
400 shares
@$ @$ @$15
Capital stock $100,000 $100,000 $100,000
Retained earnings , , ,000
Total $200,000 $200,000 $200,000
Less: Treasury stock , , ,000
Total equity $192,000 $188,000 $194,000
Pointer’s interest / / /6
Pointer’s share of
Shelly’s book value $160,000 $156,667 $161,667