The following six accounts appear in the 2018 financial statements of Poplar and its 100%-owned subsidiary, Spruce (created in 2011), at the end of 2018. Poplar Spruce Common stock, 12/31/18 $ 80,000 $ 50,000 Additional paid-in capital, 12/31/18 240,000 160,000 Retained earnings, 12/31/18 490,000 170,000 Dividends declared, 2018 120,000 40,000 Equity in net income of Spruce, 2018 50,000 Investment in subsidiary, 12/31/18 380,000 In addition, Poplar’s Retained Earnings account showed $325,000 on 1/1/18. Required: Did Poplar use the cost method or the equity method to record its investment in Spruce? How do you know? Give two reasons. Provide the following figures: (Show calculations!) a) Spruce’s retained earnings at 1/1/18: ______ b) Poplar’s “Investment in Spruce” at 1/1/18: c) Poplar’s net income, 2018: d) Poplar’s own operating income, 2018: _ e) Consolidated net income, 2018: _ f) Consolidated retained earnings at 12/31/18: _ g) Consolidated dividends, 2018: ________

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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The following six accounts appear in the 2018 financial statements of Poplar and its 100%-owned subsidiary, Spruce (created in 2011), at the end of 2018.

Poplar Spruce

Common stock, 12/31/18 $ 80,000 $ 50,000

Additional paid-in capital, 12/31/18 240,000 160,000

Retained earnings, 12/31/18 490,000 170,000

Dividends declared, 2018 120,000 40,000

Equity in net income of Spruce, 2018 50,000

Investment in subsidiary, 12/31/18 380,000

In addition, Poplar’s Retained Earnings account showed $325,000 on 1/1/18.

Required:

Did Poplar use the cost method or the equity method to record its

investment in Spruce? How do you know? Give two reasons.

Provide the following figures: (Show calculations!)

a) Spruce’s retained earnings at 1/1/18: ____________

b) Poplar’s “Investment in Spruce” at 1/1/18: __________

c) Poplar’s net income, 2018: __________

d) Poplar’s own operating income, 2018: ___________

e) Consolidated net income, 2018: ___________

f) Consolidated retained earnings at 12/31/18: ___________

g) Consolidated dividends, 2018: ____________

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