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Equity Method and Eliminating Entries Three Years After Acquisition Puffin Industries acquired all of Sunset Coast Digital's stock on January 1, 2014, for $7,000,000, $4,200,000 in excess of book value. At that time, Sunset Coast's inventory (LIFO) was overvalued by $1,000,000 and its plant assets (10-year lidel were overvalued by $2,000,000. The remaining excess of cost over book value is attributed to undervalued identifiable intangible assets being amortized over 20 years. Sunset Coast depreciates plant assets and amortizes intangibles by the straight-line method. During 2014 and 2015, Sunset Coast reported total net income of $1,300,000 and paid out 50 percent in dividends. Puffin carries its investment in Sunset Coast using the complete equity method. Sunset Coast's inventory increased each year since it was acquired by Puffin, and Sunset Coast's reported net income for 2016 was $400,000, and dividends totaled 50 percent of reported income. a. Compute Puffin's 2016 equity in net income of Sunset Coast. $ 385,000 x b. Compute the balance in the investment in Sunset Coast account at December 31, 2016, after all equity method entries have been booked. $ 1,842,500 x c. Prepare the working paper eliminating entries needed in consolidation at December 31, 2016, Consolidation Journal (Equity in nat income of Sunset Coast Ref. Description Dividends-Sunset Coast Investment in Sunset Coast (E)Stockholders equity Sunset Coast 1/1 Investment in Sunst Coast (identifiable intangibles Inventory punt assets net investment in Suncat Coast (Plant asses, t Amortization expense Depreciation pense identifiable intangibles $385.000 X ✓ ✓ Check v .✔ ou ✔ V BM ✓ Debit M Ov 05 x x OV x 201 om OV x x 04 ou Credit x x Ov x 55 x x x d. If Puffin reports $1,200,000 net income from its own operations in 2016, what is consolidated net income for 2016? 2 DV DV *

Equity Method and Eliminating Entries Three Years After Acquisition Puffin Industries acquired all of Sunset Coast Digital's stock on January 1, 2014, for $7,000,000, $4,200,000 in excess of book value. At that time, Sunset Coast's inventory (LIFO) was overvalued by $1,000,000 and its plant assets (10-year lidel were overvalued by $2,000,000. The remaining excess of cost over book value is attributed to undervalued identifiable intangible assets being amortized over 20 years. Sunset Coast depreciates plant assets and amortizes intangibles by the straight-line method. During 2014 and 2015, Sunset Coast reported total net income of $1,300,000 and paid out 50 percent in dividends. Puffin carries its investment in Sunset Coast using the complete equity method. Sunset Coast's inventory increased each year since it was acquired by Puffin, and Sunset Coast's reported net income for 2016 was $400,000, and dividends totaled 50 percent of reported income. a. Compute Puffin's 2016 equity in net income of Sunset Coast. $ 385,000 x b. Compute the balance in the investment in Sunset Coast account at December 31, 2016, after all equity method entries have been booked. $ 1,842,500 x c. Prepare the working paper eliminating entries needed in consolidation at December 31, 2016, Consolidation Journal (Equity in nat income of Sunset Coast Ref. Description Dividends-Sunset Coast Investment in Sunset Coast (E)Stockholders equity Sunset Coast 1/1 Investment in Sunst Coast (identifiable intangibles Inventory punt assets net investment in Suncat Coast (Plant asses, t Amortization expense Depreciation pense identifiable intangibles $385.000 X ✓ ✓ Check v .✔ ou ✔ V BM ✓ Debit M Ov 05 x x OV x 201 om OV x x 04 ou Credit x x Ov x 55 x x x d. If Puffin reports $1,200,000 net income from its own operations in 2016, what is consolidated net income for 2016? 2 DV DV *

Financial Accounting Intro Concepts Meth/Uses
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
Chapter14: Intercorporate Investments In Common Stock
Section: Chapter Questions
Problem 16E
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Equity Method and Eliminating Entries Three Years After Acquisition Puffin Industries acquired all of Sunset Coast Digital's stock on January 1, 2014, for $7,000,000, $4,200,000 in excess of book value. At that time, Sunset Coast's inventory (LIFO) was overvalued by $1,000,000 and its plant assets (10-year life) were overvalued by $2,000,000. The remaining excess of cost over book value is attributed to undervalued identifiable intangible assets being amortized over 20 years. Sunset Coast depreciates plant assets and amortizes intangibles by the straight-line method. During 2014 and 2015, Sunset Coast reported total net income of $1,300,000 and paid out 50 percent in dividends. Puffin carries its investment in Sunset Coast using the complete equity method. Sunset Coast's inventory increased each year since it was acquired by Puffin, and Sunset Coast's reported net income for 2016 was $400,000, and dividends totaled 50 percent of reported income. a. Compute Puffin's 2016 equity in net income of Sunset Coast. $385,000 b. Compute the balance in the Investment in Sunset Coast account at December 31, 2016, after all equity method entries have been booked. $ 1,842,500 X X c. Prepare the working paper eliminating entries needed in consolidation at December 31, 2016. Consolidation Journal Ref. Description (C) Equity in net income of Sunset Coast Dividends - Sunset Coast Investment in Sunset Coast Stockholders' equity-Sunset Coast, 1/1 Investment in Sunset Coast (E) (R) Identifiable intangibles Inventory Plant assets, net Investment in Sunset Coast (O) Plant assets, net Amortization expense Depreciation expense Identifiable intangibles Check + ✓ ◆ + → + + ✓ ✓ ✓ Debit X 0 ✓ 0 ✓ X 0 ✓ x 0✓ 0✔ 0✓ X X 0 ✓ 0✔ Credit 0✓ X X 0 X 0 ✓ x X X 0✔ 0 ✓ x X d. If Puffin reports $1,200,000 net income from its own operations in 2016, what is consolidated net income for 2016? $385,000 x
Transcribed Image Text:Equity Method and Eliminating Entries Three Years After Acquisition Puffin Industries acquired all of Sunset Coast Digital's stock on January 1, 2014, for $7,000,000, $4,200,000 in excess of book value. At that time, Sunset Coast's inventory (LIFO) was overvalued by $1,000,000 and its plant assets (10-year life) were overvalued by $2,000,000. The remaining excess of cost over book value is attributed to undervalued identifiable intangible assets being amortized over 20 years. Sunset Coast depreciates plant assets and amortizes intangibles by the straight-line method. During 2014 and 2015, Sunset Coast reported total net income of $1,300,000 and paid out 50 percent in dividends. Puffin carries its investment in Sunset Coast using the complete equity method. Sunset Coast's inventory increased each year since it was acquired by Puffin, and Sunset Coast's reported net income for 2016 was $400,000, and dividends totaled 50 percent of reported income. a. Compute Puffin's 2016 equity in net income of Sunset Coast. $385,000 b. Compute the balance in the Investment in Sunset Coast account at December 31, 2016, after all equity method entries have been booked. $ 1,842,500 X X c. Prepare the working paper eliminating entries needed in consolidation at December 31, 2016. Consolidation Journal Ref. Description (C) Equity in net income of Sunset Coast Dividends - Sunset Coast Investment in Sunset Coast Stockholders' equity-Sunset Coast, 1/1 Investment in Sunset Coast (E) (R) Identifiable intangibles Inventory Plant assets, net Investment in Sunset Coast (O) Plant assets, net Amortization expense Depreciation expense Identifiable intangibles Check + ✓ ◆ + → + + ✓ ✓ ✓ Debit X 0 ✓ 0 ✓ X 0 ✓ x 0✓ 0✔ 0✓ X X 0 ✓ 0✔ Credit 0✓ X X 0 X 0 ✓ x X X 0✔ 0 ✓ x X d. If Puffin reports $1,200,000 net income from its own operations in 2016, what is consolidated net income for 2016? $385,000 x
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