Page 570 - Accounting Principles (A Business Perspective)

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stockholders have an interest in the subsidiary's net assets and share the subsidiary's income or loss with the parent
company.
Look at Exhibit 111, which shows the elimination entries required when P Company purchases 80 per cent of S

Company's stock for USD 90,000. The book value of the stock acquired by P Company is USD 84,800 (80 per cent
of USD 106,000). Assuming no assets are undervalued, P Company attributes the excess of cost (USD 90,000) over
book value (USD 84,800) of USD 5,200 to S Company's above-average earnings prospects (goodwill).
Elimination entry 1 eliminates S Company's stockholders' equity by debiting Common Stock for USD 100,000,
Paid-In Capital in Excess of Par Value—Common for USD 4,000, and Retained Earnings for USD 2,000. To
establish minority interest, it credits a Minority Interest account for USD 21,200 (20 per cent of USD 106,000). P
Company eliminates the investment account by crediting Investment in S Company for USD 90,000. The USD

5,200 debited to Goodwill makes the debits equal the credits. In journal form, the elimination entry 1 is:
P Company and Subsidiary S Company
Consolidation balance sheet
2010 January 1
Assets
Current assets:
Cash $19,000
Accounts receivable, net 39,000
Merchandise inventory 65,000
Total current assets $123,000
Property, plant, and equipment:
Equipment, net $56,000
Building, net 100,000
Land 34,000
Total property, plant, and equipment 190,000
Goodwill 15,000
Total assets $328,000
Liabilities and stockholders' equity
Current liabilities:
Account payable $24,000
Stockholders' equity:
Common stock $250,000
Retained earnings 54,000
Total stockholders' equity 304,000
Total liabilities and stockholders equity $328,000
Exhibit 110: Consolidated balance sheet

Common stock (-SE) 100,000
Paid-in capital in excess of par value – 4,000
Common (-SE)
Retained earnings (-SE) 2,000
Goodwill (+A) 5,200
Investment in S Company (-A) 90,000
Minority interest (+L) 21,200
To eliminate investment and subsidiary
stockholder's equity and to establish minority
interest and goodwill.
Elimination entry 2 is the same as shown in Exhibit 108. The entry eliminates intercompany debt by debiting
Notes Payable and crediting Notes Receivable for USD 5,000.
On the consolidated balance sheet (Exhibit 112), minority interest appears between the liabilities and

stockholders' equity sections.

Accounting Principles: A Business Perspective 571 A Global Text