Retained Earning in Consoldiation

At the start of 2016, Suburban decided to provide its publications with a new, fresh look and include more high-quality colored images. To meet this need, Suburban purchased HiQ Printers, which had high speed production printing presses in all of Suburban’s distribution areas. Suburban purchased 60% of the company’s shares in exchange for its own shares. At the time of the purchase, there were 8 million shares of HiQ Printers outstanding trading at $14 per share. The fair value of HiQ Printers’ net identifiable assets at that time was $99 million. Exhibit 4 shows the shareholders’ equity of both companies prior to the business combination.

Q. Immediately following its business combination with HiQ Printers, the total shareholders’ equity (in thousands) on Suburban’s consolidated financial statements is closest to:

  1. $532,200.
  2. $577,000.
  3. $571,800.

B is correct. The shareholders’ equity section of the post-acquisition consolidated balance sheet will consist of the capital stock and retained earnings account of the parent and the non-controlling interest of the minority shareholders. Under US GAAP, the value of the non-controlling interest is equal to the non-controlling interest’s proportionate share of the subsidiary’s fair value.

A: Amount paid for 60% interest = 60% × $14/share× 8,000,000 shares = $67,200 thousand

Fair value of subsidiary = 8 million shares ×$14/share = $112,000 thousand

B: Non-controlling interest = $112,000 × (1 – 0.60) = $44,800 thousand

Shareholders’ Equity** ($ thousands) **Calculation Non-controlling interest 44,800 See B above Capital stock 347,200 280,000 + 67,200: Original + Issued in acquisition (see A.above) Retained earnings 185,000 Suburban’s retained earnings Total equity 577,000

Why did not we include the retained earnings of the subsidiary worth $26,000?

Because if we did, the balance sheet wouldn’t balance.

If you were to add $26,000 to retained earnings, what asset would you increase or what liability would you decrease to make the balance sheet balance?

Are not we consolidating, so we are adding the equivalent of the RE on the asset or the liability side!

Why are you asking questions with exclamation points?

(It comes across as demanding, and rude.)

You should make two simple balance sheets: one for company P (parent) and one for company S (subsidiary). At most 2 or 3 assets each, and at most 2 or 3 liabilities each. Common Stock and Retained Earnings.

Let P buy some percentage of S for cash (paying book value: no goodwill), then put together the consolidated balance sheet for P. You’ll see immediately why they don’t include S’s shareholders’ equity. Then do it for another percentage. It’ll stick.

Honestly, you’ll learn a lot more about this by doing it yourself than by watching me do it.

Do not take it personal, I do not mean by any chance ot be rude or demanding to anyone, since all of us are helping each other, it is based on the situation, and my surprise for how the answer goes.

In all cases, I’ll try not to use it when replying to your comments:D

As for you suggestion, I’ve tried it but did not work out with me.

Suppose the B/S for P is as follows:

Cash20,000 A/P5,000

A/R10,000 C.S10,000


B/S for S is as follows:

Cash2,000 A/P3,000

A/R7,000 C.S4,000


And let’s assume that P will acquire 50% with a book value of $3K, to use the consolidation method. The consolidated statement for P will be as follows:

Cash22,000 A/P8,000

A/R17,000 C.S13,000


The two sides still did not equate.

You should have less cash. P started with $20k but so paid how much for S? P cannot have $22k in cash after consolidation.

or are you saying this was a stock trade? Where ya minority’s interest?

So it should be;

Cash19,000 A/P8,000

A/R17,000 C.S16,000



It equates that way, but here I have included the R.E of the subsidary in the C.S of the parent

Why is your NCI negative? In a consolidated statement of financial position you basically need to split the equity of the group to equity of the majority owners and equity of minority owners (also called non-controlling interest, not minority interest anymore). Above, you should have AP 8, share capital 10, RE of 15, and NCI 3.