Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 3, Problem 3.30P
Consolidated Worksheet at End of the First Year of Ownership (Equity Method)
Paper Company acquired 80 percent of Scissor Company’s outstanding common stock for$296,000 on January 1, 20X8, when the book value of Scissor’s net assets was equal to $370,000.Paper uses the equity method to account for investments.
Required
a. Prepare any equity-method entry(ies) related to the investment in Scissor Company during20X8.
b. Prepare a consolidation worksheet for 20X8 in good form.
a.
Expert Solution
To determine
Introduction:
The consolidated balance sheet and the worksheets are the computed tools that are used to calculate the retained earnings and the dividend produced by the subsidiaries towards its parent company.
To prepare: A journal entry by equity method for the investment in S company in the year
Explanation of Solution
| Equity method entry onP company books | Amount ($) | Amount ($) |
| Investment in S co. Dr. | ||
| Cash Cr. | ||
| (To recordthe initial investment in S co.) | ||
| Investment in S co. Dr. | ||
| Income from S co. Cr. | ||
| (To record share of P co in S co.) | ||
| Cash Dr. | ||
| Investment in S company. Cr. | ||
| (To record P co.’s share in S Co.’s dividend) |
b.
Expert Solution
To determine
Introduction:
The consolidated balance sheet and the worksheets are the computed tools that are used to calculate the retained earnings and the dividend produced by the subsidiaries towards its parent company.
To prepare:The consolidated worksheet for the final values.
Explanation of Solution
| Book value calculation | |||||||
| NCI | + | P co | = | Common stock | + | Retained earnings | |
| Book value | |||||||
| Net income | |||||||
| Dividend | |||||||
| Ending book value |
| Income statement | P co | S co | Eliminated Dr. | Eliminated Cr. | Consolidated |
| Cash | |||||
| Accounts received | |||||
| Inventory | |||||
| Investment in scissor co | |||||
| Land | |||||
| Building and equipment | |||||
| Less accumulated depreciation | |||||
| Total assets | |||||
| Accountspayable | |||||
| Bonds | |||||
| Common stocks | |||||
| Retained earnings | |||||
| NCI in NA of Snoopy Co. | |||||
| Total liabilities |
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Instructions
At a total cost of $6,950,000, Herrera Corporation acquired 229,500 shares of Tran Corp. common stock
as a long-term investment. Herrera Corporation uses the equity method of accounting for this investment.
Tran Corp. has 850,000 shares of common stock outstanding, including the shares acquired by Herrera
Corporation.
Required:
A. Journalize the entries by Herrera Corporation on December 31 to record the following
information (refer to the Chart of Accounts for exact wording of account titles):
1. Tran Corp. reports net income of $974,000 for the current period.
2. A cash dividend of $0.28 per common share is paid by Tran Corp. during the current
period.
B. Why is the equity method appropriate for the Tran Corp. investment?
Peanut Company acquired 90 percent of Snoopy Company’s outstanding common stock for $270,000 on January 1, 20X8, when the book value of Snoopy’s net assets was equal to $300,000. Peanut uses the equity method to account for investments. Trial balance data for Peanut and Snoopy as of December 31, 20X8, follow:
Peanut Company
Snoopy Company
Debit
Credit
Debit
Credit
Cash
$ 158,000
$ 80,000
Accounts Receivable
165,000
65,000
Inventory
200,000
75,000
Investment in Snoopy Company
319,500
0
Land
200,000
100,000
Buildings and Equipment
700,000
200,000
Cost of Goods Sold
200,000
125,000
Depreciation Expense
50,000
10,000
Selling & Administrative Expense
225,000
40,000
Dividends Declared
100,000
20,000
Accumulated Depreciation
$ 450,000
$ 20,000
Accounts Payable
75,000
60,000
Bonds Payable
200,000
85,000
Common Stock
500,000
200,000
Retained Earnings
225,000
100,000
Sales
800,000
250,000…
Required information
On January 1, 20X2, Power Company acquired 80 percent of Strong Company's outstanding stock for cash. The fair value
of the noncontrolling interest was equal to a proportionate share of the book value of Strong Company's net assets at the
date of acquisition. Selected balance sheet data at December 31, 20X2 are as follows:
Total Assets
Liabilities
Common Stock
Retained Earnings
Total Liabilities & Stockholders' Equity
Multiple Choice
O
$35,200
Based on the preceding information, what amount should be reported as noncontrolling interest in net assets in Power Company's December 31, 20X2, consolidated balance sheet?
$48,200
$76,800
Power
$ 564,000
O $112,800
180,000
150,000
234,000
$ 564,000
Strong
$ 216,000
65,000
80,000
96,000
$ 241,000
Chapter 3 Solutions
Advanced Financial Accounting
Ch. 3 - What is the basic idea underlying the preparation...Ch. 3 - How might consolidated statements help an investor...Ch. 3 - Prob. 3.3QCh. 3 - Prob. 3.4QCh. 3 - Prob. 3.5QCh. 3 - Prob. 3.6QCh. 3 - Prob. 3.7QCh. 3 - Prob. 3.8QCh. 3 - Prob. 3.9QCh. 3 - Prob. 3.10Q
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