Asked by Sharath Rajendran on May 08, 2024
Verified
Ying Corporation formed a new subsidiary, Zang Limited, in 20X2. Ying is mainly involved in the manufacturing, distribution, and retailing of dog food and Zang manufacturers and distributes cat food. At that time, Ying provided all of the start-up capital to Zang in the form of equity, purchasing all of Zang's shares for $1.5 million. The unconsolidated statements for the two companies at December 31, 20X7, are shown below. Separate-Entity Financial Statements
Statements of Financial Position for Ying and Zang
December 31,20X7 31,20 \mathrm{X} 7 31,20X7
(In 000s)
( In $000s) Ying $ Zang $ Assets Cash 160320 Accounts receivable 2,300620 Inventory 3,500‾650‾5,9601,590 Property, Plant, and Equipment-net 10,9005,980 Investment in Zang 1,500 Loan receivable - from sub 1,000 Total assets 19,3607,570 Liabilities Accounts payable 5,6001,250 Long term debt 8,5001,880 Loan payable-to parent 1,000 Total liabilities 14,100‾4,130‾ Shareholders’ equity Common shares 1,0001,500 Retained earnings 4,2601,940 Total shareholders’ equity 5,2603,440‾ Total liabilities and shareholders’ equity 19,360‾7,570\begin{array}{|l|r|r|}\hline \text {( In } \$ 000 s) & \text { Ying }\$ & \text { Zang }\$ \\\hline \text { Assets } & & \\\hline \text { Cash } & 160 & 320 \\\hline \text { Accounts receivable } & 2,300 & 620 \\\hline \text { Inventory } & \underline{3,500} & \underline{650} \\\hline & 5,960 & 1,590 \\\hline \text { Property, Plant, and Equipment-net } & 10,900&5,980 \\\hline \text { Investment in Zang } & 1,500 \\\hline \text { Loan receivable - from sub } & 1,000 \\\hline \text { Total assets } & 19,360&7,570 \\\hline\\\hline \text { Liabilities } & & \\\hline \text { Accounts payable } & 5,600 & 1,250 \\\hline \text { Long term debt } & 8,500 & 1,880 \\\hline \text { Loan payable-to parent } & & 1,000 \\\hline \text { Total liabilities } & \underline{14,100} & \underline{4,130} \\\hline \text { Shareholders' equity } & & \\\hline \text { Common shares } & 1,000 & 1,500 \\\hline \text { Retained earnings } & 4,260 & 1,940 \\\hline \text { Total shareholders' equity } & 5,260 & \underline{3,440} \\\hline \text { Total liabilities and shareholders' equity } & \underline{19,360} & \mathbf{7 , 5 7 0} \\\hline\end{array}( In $000s) Assets Cash Accounts receivable Inventory Property, Plant, and Equipment-net Investment in Zang Loan receivable - from sub Total assets Liabilities Accounts payable Long term debt Loan payable-to parent Total liabilities Shareholders’ equity Common shares Retained earnings Total shareholders’ equity Total liabilities and shareholders’ equity Ying $1602,3003,5005,96010,9001,5001,00019,3605,6008,50014,1001,0004,2605,26019,360 Zang $3206206501,5905,9807,5701,2501,8801,0004,1301,5001,9403,4407,570 Statements of Comprehensive Income for Ying and Zang
Year Ended December 31, 20X7
(In 000s)
( In $000s) Ying $ Zang $ Sales 27,6007,440 Cost of goods sold 19,3204,840 Gross profit 8,280‾2,600 Expenses Selling, general, and administration 3,6701,530 Interest 750‾260 Total expenses 4,4201,790‾ Operating profit 3,860810 Other income 1,3300 Earnings before taxes 5,190810 Income taxes 2,070‾320‾ Net earnings 3,120‾490‾\begin{array}{|l|r|r|}\hline \text {( In } \$ 000 s) & \text { Ying }\$ & \text { Zang }\$ \\\hline \text { Sales } & 27,600 & 7,440 \\\hline \text { Cost of goods sold } & 19,320 & 4,840 \\\hline \text { Gross profit } & \underline{8,280} & 2,600 \\\hline \text { Expenses } & & \\\hline \text { Selling, general, and administration } & 3,670 & 1,530 \\\hline \text { Interest } & \underline{750} & \mathbf{2 6 0} \\\hline \text { Total expenses } & \mathbf{4 , 4 2 0} & \underline{1,790} \\\hline \text { Operating profit } & 3,860 & 810 \\\hline \text { Other income } & 1,330 & 0 \\\hline \text { Earnings before taxes } & 5,190 & 810 \\\hline \text { Income taxes } & \underline{2,070} & \underline{320} \\\hline \text { Net earnings } & \underline{3,120} & \underline{490} \\\hline\\\hline\end{array}( In $000s) Sales Cost of goods sold Gross profit Expenses Selling, general, and administration Interest Total expenses Operating profit Other income Earnings before taxes Income taxes Net earnings Ying $27,60019,3208,2803,6707504,4203,8601,3305,1902,0703,120 Zang $7,4404,8402,6001,5302601,7908100810320490 Statements of Changes in Equity-Retained Earnings Section for Ying and Zang
Year Ended December 31, 20X7
(In 000s)
( In $000s) Ying $ Zang $ Retained Earnings-January 1, 20X7 2,7401,800 Net earnings 3,120490 Dividends paid (1,600)(350) Retained Earnings-December 31, 20X6 4,2601,940\begin{array}{|l|r|l|}\hline \text {( In } \$ 000 s) & \text { Ying }\$ & \text { Zang }\$ \\\hline \text { Retained Earnings-January 1, 20X7 } & 2,740 &1,800\\\hline \text { Net earnings } & 3,120&490 \\\hline \text { Dividends paid } & (1,600)&(350) \\\hline \text { Retained Earnings-December 31, 20X6 } & 4,260 &1,940\\\hline\end{array}( In $000s) Retained Earnings-January 1, 20X7 Net earnings Dividends paid Retained Earnings-December 31, 20X6 Ying $2,7403,120(1,600)4,260 Zang $1,800490(350)1,940 During 20X7, the following transactions took place (all dollars are in thousands):
• Ying provided a loan to Zang and charged interest totalling $80.
• Zang sold merchandise to Ying totalling $3,270, which was all subsequently sold to outside third parties by the end of the year.
• Included in Zang's receivables is $270 still owed by Ying for these sales.
• Ying charged management fees of $900 to Zang during the year.
Required:
Using the direct approach, prepare the consolidated statements of comprehensive income; statement of changes in equity-retained earnings section; and statement of financial position at December 31, 20X7. Show details of all of your work to arrive at the consolidated balances. Provide the consolidating journal entries required.
Consolidated Statements
Reports that combine the financial performance and position of a parent company and its subsidiaries, offering a comprehensive overview of the total business.
Direct Approach
A method of presenting the cash flow statement where major classes of gross cash receipts and gross cash payments are disclosed, offering transparency in financial reporting.
Comprehensive Income
The total change in equity for a reporting period other than transactions from owners, encompassing all recognized income and expenses.
- Elucidate the differences in the application of cost, equity, and consolidation methods for accounting investments.
- Pinpoint the necessary conditions for creating consolidated financial statements.
- Acquire knowledge on the consolidation procedures and the management of transactions among affiliated entities.
Verified Answer
SS
Shifa SohailMay 09, 2024
Final Answer :
Consolidated Statement of Financial Position for Ying at December 31, 20X7 (In 000s)
in $000s) $ Assets Cash (160+320)480 Accounts receivable (2,300+620−270(e))2,650 Inventory (3,500+650)4,150‾7,280 Property, plant, and equipment − net (10,900+5,980)16,880 Investment in Zang (1,500−1,500(a))0 Loan receivable − from sub (1,000−1,000(b))0 Total assets 24,160 Liabilities Accounts payable (5,600+1,250−270(e))6,580 Long-term debt (8,500+1,880)10,380 Loan payable-to parent (1,000−1,000( b))0 Total liabilities 16,960 Shareholders’ equity Common shares 1,000+1,500−1,500 (a) 1,000 Retained earnings (4,260+1,940)6,200‾ Total shareholders’ equity 7,200‾ Total liabilities and shareholders’ equity 24,160‾\begin{array}{|l|r|}\hline \text { in \$000s) } & \text { \$ } \\\hline \text { Assets } & \\\hline \text { Cash }(160+320) &480 \\\hline \text { Accounts receivable }(2,300+620-270(\mathrm{e})) & 2,650 \\\hline \text { Inventory }(3,500+650) & \underline{4,150} \\\hline& 7,280\\\hline \text { Property, plant, and equipment }- \text { net }(10,900+5,980) & 16,880 \\\hline \text { Investment in Zang }(1,500-1,500(\mathrm{a})) & 0 \\\hline \text { Loan receivable }- \text { from sub }(1,000-1,000(b)) & 0 \\\hline \text { Total assets } & 24,160 \\\hline\\\hline \text { Liabilities } & \\\hline \text { Accounts payable }(5,600+1,250-270(\mathrm{e})) & 6,580 \\\hline \text { Long-term debt }(8,500+1,880) & 10,380 \\\hline \text { Loan payable-to parent }(1,000-1,000(\mathrm{~b})) & 0 \\\hline \text { Total liabilities } & 16,960 \\\hline \text { Shareholders' equity } & \\\hline \text { Common shares } 1,000+1,500-1,500 \text { (a) } & 1,000 \\\hline \text { Retained earnings }(4,260+1,940) & \underline{6,200} \\\hline \text { Total shareholders' equity } & \underline{7, 200} \\\hline \text { Total liabilities and shareholders' equity } & \underline{24,160} \\\hline\end{array} in $000s) Assets Cash (160+320) Accounts receivable (2,300+620−270(e)) Inventory (3,500+650) Property, plant, and equipment − net (10,900+5,980) Investment in Zang (1,500−1,500(a)) Loan receivable − from sub (1,000−1,000(b)) Total assets Liabilities Accounts payable (5,600+1,250−270(e)) Long-term debt (8,500+1,880) Loan payable-to parent (1,000−1,000( b)) Total liabilities Shareholders’ equity Common shares 1,000+1,500−1,500 (a) Retained earnings (4,260+1,940) Total shareholders’ equity Total liabilities and shareholders’ equity $ 4802,6504,1507,28016,8800024,1606,58010,380016,9601,0006,2007,20024,160 Consolidated Statement of Comprehensive Income for Ying Year
Ended December 31, 20X7 20X7 20X7
(In 000s)
(in $000s) $ Sales (27,600+7,440−3,270( d))31,770 Cost of goods sold (19,320+4,840−3,270( d))20,890‾ Gross profit 10,880‾ Expenses Selling, general, and administration (3,670+1,530−900(f))4,300 Interest (750+260−80(c))930 Total expenses 5,230 Operating profit 5,650 Other income (1,330−80(c)−900(f)−350( g))0 Earnings before taxes 5,650 Income taxes (2,070+320)2,390 Net earnings 3,260\begin{array}{|l|l|}\hline \text { (in \$000s) }&\$\\\hline \text { Sales }(27,600+7,440-3,270(\mathrm{~d})) & 31,770 \\\hline \text { Cost of goods sold }(19,320+4,840-3,270(\mathrm{~d})) & \underline{20,890} \\\hline \text { Gross profit } & \underline{10,880} \\\hline \text { Expenses } & \\\hline \text { Selling, general, and administration }(3,670+1,530-900(\mathrm{f})) & 4,300 \\\hline \text { Interest }(750+260-80(\mathrm{c})) & 930 \\\hline \text { Total expenses } & 5,230 \\\hline \text { Operating profit } & 5,650 \\\hline \text { Other income }(1,330-80(\mathrm{c})-900(\mathrm{f})-350(\mathrm{~g})) &0 \\\hline \text { Earnings before taxes } & 5,650 \\\hline \text { Income taxes }(2,070+320) & 2,390 \\\hline \text { Net earnings } & 3,260 \\\hline & \\\hline\end{array} (in $000s) Sales (27,600+7,440−3,270( d)) Cost of goods sold (19,320+4,840−3,270( d)) Gross profit Expenses Selling, general, and administration (3,670+1,530−900(f)) Interest (750+260−80(c)) Total expenses Operating profit Other income (1,330−80(c)−900(f)−350( g)) Earnings before taxes Income taxes (2,070+320) Net earnings $31,77020,89010,8804,3009305,2305,65005,6502,3903,260 Consolidated Statement of Changes in Equity - Retained Earnings section for Ying
Year Ended December 31, 20X7
(In 000s)
Retained Earnings-January 1,20X72,740+1,8004,540 Net earnings (as above) 3,260 Dividends paid (1,600+350−350( g))(1,600) Retained Earnings-December 31, 20X6 6,200‾\begin{array}{|l|r|}\hline \text { Retained Earnings-January } 1,20 X 72,740+1,800 & 4,540 \\\hline \text { Net earnings (as above) } & 3,260 \\\hline \text { Dividends paid }(1,600+350-350(\mathrm{~g})) & (1,600) \\\hline \text { Retained Earnings-December 31, 20X6 } & \underline{6,200} \\\hline\end{array} Retained Earnings-January 1,20X72,740+1,800 Net earnings (as above) Dividends paid (1,600+350−350( g)) Retained Earnings-December 31, 20X6 4,5403,260(1,600)6,200 Consolidating journal entries required:
(a) \quad To eliminate the investment account
Dr. Common shares (Zang) \quad\quad 1,500
\quad\quad Cr. Investment in Zang (Ying) \quad\quad 1,500
(b) To eliminate the intercompany loan receivable and loan payable:
Dr. Loan payable - to parent (Zang) \quad\quad 1,000
\quad\quad Cr. Loan receivable - from Sub (Ying) \quad\quad 1,000
(c) To eliminate the intercompany interest paid on the loan:
Dr. Other income (Ying) \quad\quad 80
\quad\quad Cr. Interest expense (Zang) \quad\quad 80
(d) To eliminate the intercompany sales of merchandise:
Dr. Sales (Zang) \quad\quad 3,270
\quad Cr. Cost of goods sold (Ying) \quad\quad 3,270
(e) To eliminate the intercompany receivable and payable at year end:
Dr. Accounts payable (Ying) \quad\quad 270
\quadCr \mathrm{Cr} Cr . Accounts receivable (Zang) \quad\quad 270
(f) To eliminate the intercompany management fees paid during the year:
Dr. Other income (Ying) \quad\quad 900
\quad Cr. Selling, general, and admin (Zang) \quad\quad 900
(g) To eliminate the intercompany dividends paid during the year:
Dr. Other income (Ying) \quad\quad 350
\quad Cr. Retained earnings (Zang) \quad\quad 350
in $000s) $ Assets Cash (160+320)480 Accounts receivable (2,300+620−270(e))2,650 Inventory (3,500+650)4,150‾7,280 Property, plant, and equipment − net (10,900+5,980)16,880 Investment in Zang (1,500−1,500(a))0 Loan receivable − from sub (1,000−1,000(b))0 Total assets 24,160 Liabilities Accounts payable (5,600+1,250−270(e))6,580 Long-term debt (8,500+1,880)10,380 Loan payable-to parent (1,000−1,000( b))0 Total liabilities 16,960 Shareholders’ equity Common shares 1,000+1,500−1,500 (a) 1,000 Retained earnings (4,260+1,940)6,200‾ Total shareholders’ equity 7,200‾ Total liabilities and shareholders’ equity 24,160‾\begin{array}{|l|r|}\hline \text { in \$000s) } & \text { \$ } \\\hline \text { Assets } & \\\hline \text { Cash }(160+320) &480 \\\hline \text { Accounts receivable }(2,300+620-270(\mathrm{e})) & 2,650 \\\hline \text { Inventory }(3,500+650) & \underline{4,150} \\\hline& 7,280\\\hline \text { Property, plant, and equipment }- \text { net }(10,900+5,980) & 16,880 \\\hline \text { Investment in Zang }(1,500-1,500(\mathrm{a})) & 0 \\\hline \text { Loan receivable }- \text { from sub }(1,000-1,000(b)) & 0 \\\hline \text { Total assets } & 24,160 \\\hline\\\hline \text { Liabilities } & \\\hline \text { Accounts payable }(5,600+1,250-270(\mathrm{e})) & 6,580 \\\hline \text { Long-term debt }(8,500+1,880) & 10,380 \\\hline \text { Loan payable-to parent }(1,000-1,000(\mathrm{~b})) & 0 \\\hline \text { Total liabilities } & 16,960 \\\hline \text { Shareholders' equity } & \\\hline \text { Common shares } 1,000+1,500-1,500 \text { (a) } & 1,000 \\\hline \text { Retained earnings }(4,260+1,940) & \underline{6,200} \\\hline \text { Total shareholders' equity } & \underline{7, 200} \\\hline \text { Total liabilities and shareholders' equity } & \underline{24,160} \\\hline\end{array} in $000s) Assets Cash (160+320) Accounts receivable (2,300+620−270(e)) Inventory (3,500+650) Property, plant, and equipment − net (10,900+5,980) Investment in Zang (1,500−1,500(a)) Loan receivable − from sub (1,000−1,000(b)) Total assets Liabilities Accounts payable (5,600+1,250−270(e)) Long-term debt (8,500+1,880) Loan payable-to parent (1,000−1,000( b)) Total liabilities Shareholders’ equity Common shares 1,000+1,500−1,500 (a) Retained earnings (4,260+1,940) Total shareholders’ equity Total liabilities and shareholders’ equity $ 4802,6504,1507,28016,8800024,1606,58010,380016,9601,0006,2007,20024,160 Consolidated Statement of Comprehensive Income for Ying Year
Ended December 31, 20X7 20X7 20X7
(In 000s)
(in $000s) $ Sales (27,600+7,440−3,270( d))31,770 Cost of goods sold (19,320+4,840−3,270( d))20,890‾ Gross profit 10,880‾ Expenses Selling, general, and administration (3,670+1,530−900(f))4,300 Interest (750+260−80(c))930 Total expenses 5,230 Operating profit 5,650 Other income (1,330−80(c)−900(f)−350( g))0 Earnings before taxes 5,650 Income taxes (2,070+320)2,390 Net earnings 3,260\begin{array}{|l|l|}\hline \text { (in \$000s) }&\$\\\hline \text { Sales }(27,600+7,440-3,270(\mathrm{~d})) & 31,770 \\\hline \text { Cost of goods sold }(19,320+4,840-3,270(\mathrm{~d})) & \underline{20,890} \\\hline \text { Gross profit } & \underline{10,880} \\\hline \text { Expenses } & \\\hline \text { Selling, general, and administration }(3,670+1,530-900(\mathrm{f})) & 4,300 \\\hline \text { Interest }(750+260-80(\mathrm{c})) & 930 \\\hline \text { Total expenses } & 5,230 \\\hline \text { Operating profit } & 5,650 \\\hline \text { Other income }(1,330-80(\mathrm{c})-900(\mathrm{f})-350(\mathrm{~g})) &0 \\\hline \text { Earnings before taxes } & 5,650 \\\hline \text { Income taxes }(2,070+320) & 2,390 \\\hline \text { Net earnings } & 3,260 \\\hline & \\\hline\end{array} (in $000s) Sales (27,600+7,440−3,270( d)) Cost of goods sold (19,320+4,840−3,270( d)) Gross profit Expenses Selling, general, and administration (3,670+1,530−900(f)) Interest (750+260−80(c)) Total expenses Operating profit Other income (1,330−80(c)−900(f)−350( g)) Earnings before taxes Income taxes (2,070+320) Net earnings $31,77020,89010,8804,3009305,2305,65005,6502,3903,260 Consolidated Statement of Changes in Equity - Retained Earnings section for Ying
Year Ended December 31, 20X7
(In 000s)
Retained Earnings-January 1,20X72,740+1,8004,540 Net earnings (as above) 3,260 Dividends paid (1,600+350−350( g))(1,600) Retained Earnings-December 31, 20X6 6,200‾\begin{array}{|l|r|}\hline \text { Retained Earnings-January } 1,20 X 72,740+1,800 & 4,540 \\\hline \text { Net earnings (as above) } & 3,260 \\\hline \text { Dividends paid }(1,600+350-350(\mathrm{~g})) & (1,600) \\\hline \text { Retained Earnings-December 31, 20X6 } & \underline{6,200} \\\hline\end{array} Retained Earnings-January 1,20X72,740+1,800 Net earnings (as above) Dividends paid (1,600+350−350( g)) Retained Earnings-December 31, 20X6 4,5403,260(1,600)6,200 Consolidating journal entries required:
(a) \quad To eliminate the investment account
Dr. Common shares (Zang) \quad\quad 1,500
\quad\quad Cr. Investment in Zang (Ying) \quad\quad 1,500
(b) To eliminate the intercompany loan receivable and loan payable:
Dr. Loan payable - to parent (Zang) \quad\quad 1,000
\quad\quad Cr. Loan receivable - from Sub (Ying) \quad\quad 1,000
(c) To eliminate the intercompany interest paid on the loan:
Dr. Other income (Ying) \quad\quad 80
\quad\quad Cr. Interest expense (Zang) \quad\quad 80
(d) To eliminate the intercompany sales of merchandise:
Dr. Sales (Zang) \quad\quad 3,270
\quad Cr. Cost of goods sold (Ying) \quad\quad 3,270
(e) To eliminate the intercompany receivable and payable at year end:
Dr. Accounts payable (Ying) \quad\quad 270
\quadCr \mathrm{Cr} Cr . Accounts receivable (Zang) \quad\quad 270
(f) To eliminate the intercompany management fees paid during the year:
Dr. Other income (Ying) \quad\quad 900
\quad Cr. Selling, general, and admin (Zang) \quad\quad 900
(g) To eliminate the intercompany dividends paid during the year:
Dr. Other income (Ying) \quad\quad 350
\quad Cr. Retained earnings (Zang) \quad\quad 350
Learning Objectives
- Elucidate the differences in the application of cost, equity, and consolidation methods for accounting investments.
- Pinpoint the necessary conditions for creating consolidated financial statements.
- Acquire knowledge on the consolidation procedures and the management of transactions among affiliated entities.
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