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Consolidated Financial Statements

Emma and Will of Hills Holding Company Incorporated are interested in purchasing a leading-edge graphics production company called Zilta Incorporated. Here are some of their listed options.

Ten Percent Minority Interest

Hills purchased a 10% ownership in Zilta. Under this option, consolidation is not necessary. The investment is carried on Hills' book at cost, which is not adjusted for profits earned by Zilta. Hills has no influence over Zilta and cannot control whether Zilta produces profits or incurs losses.

Thirty-Five Percent Minority Interest

Hills purchased a 35% ownership in Zilta. Under this option, consolidation is not necessary. The investment is carried on Hills' book at its current value.

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Consolidated Financial Statements

The equity method would be used to reflect the significant influence Hills has in Zilta's affairs. For example, if Zilta had earnings the following year at $67,000, the following entry would be made on Hills' books: Debit: investment in Zilta $23,450 Credit: income from investment $23,450

Eighty Percent Controlling Interest at Book Value

With this option, Hills established controlling interest in Zilta, and the results must be presented in a consolidated statement. All changes in Zilta's accounts are reflected in the consolidation. Elimination entries are necessary to reflect Hills' investment in Zilta because a corporation cannot consider an investment it itself as an asset.

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Consolidated Financial Statements

Hills' investment is calculated as follows: Zilta's equity $162,000 Eighty percent of equity $129,600 Hills' purchase price $129,600

Eighty Percent Controlling Interest Above Book Value Using Goodwill

With this option, Hills established controlling interest in Zilta, and the results must be presented in a consolidated statement. All changes in Zilta's accounts are reflected in the consolidation. Elimination entries are necessary to reflect Hills'...