The individual financial statements for these two companies for the year ending December 31, 2021, are as follows: Lisa Company Mona, Inc. $ $ (250,000) 145,000 Sales and other revenues (550,000) 245,000 (28,000) (19,800) Expenses Dividend income-Lisa common stock Dividend income-Lisa preferred stock Net income 24 (352,800) 2$ (105,000) (725,000) (352,800) 117,800 (550,000) (105,000) 35,000 33,000 Retained earnings, 1/1/21 Net income (above) 2$ Dividends declared-common stock Dividends declared-preferred stock Retained earnings, 12/31/21 2$ (960,000) $ (587,000) Current assets 2$ 155,419 596,000 90,000 51,833 1,125,000 (325,000) 24 525,000 Investment in Lisa-common stock Investment in Lisa-preferred stock Investment in Lisa-bonds Fixed assets 825,000 Accumulated depreciation (225,000) $ 1,125,000 Total assets $ 1,693,252 Accounts payable Bonds payable Discount on bonds payable Common stock Preferred stock (408,252) (91,472) (100,000) 3,472 (225,000) (125,000) (587,000) 2$ $ (325,000) Retained earnings, 12/31/21 (960,000) Total liabilities and equities $(1,693,252) $(1,125,000) Note: Credits are indicated by parentheses. a. What consolidation worksheet adjustments would have been required as of January 1, 2020, to eliminate the subsidiary's common and preferred stocks? b. What consolidation worksheet adjustments would have been required as of December 31, 2020, to account for Mona's purchase of Lisa's bonds? c. What consolidation worksheet adjustments would have been required as of December 31, 2020, to account for the intra-entity sale of fixed assets? d. Assume that consolidated financial statements are being prepared for the year ending December 31, 2021. Calculate the consolidated balance for each of the following accounts: Franchises Fixed Assets Accumulated Depreciation Expenses
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
![The individual financial statements for these two companies for the year ending December 31, 2021, are as follows:
Lisa Company
Mona, Inc.
$ (550,000)
245,000
(28,000)
(19,800)
$ (250,000)
145,000
Sales and other revenues
Expenses
Dividend income-Lisa common stock
Dividend income-Lisa preferred stock
Net income
2$
(352,800)
$
(105,000)
(725,000)
(352,800)
117,800
(550,000)
(105,000)
35,000
33,000
Retained earnings, 1/1/21
Net income (above)
$
Dividends declared-common stock
Dividends declared-preferred stock
Retained earnings, 12/31/21
$
(960,000)
$
(587,000)
155,419
596,000
90,000
51,833
1,125,000
Current assets
$
$
525,000
Investment in Lisa-common stock
Investment in Lisa-preferred stock
Investment in Lisa-bonds
Fixed assets
825,000
(225,000)
$ 1,125,000
Accumulated depreciation
(325,000)
$ 1,693,252
$ (408,252)
Total assets
Accounts payable
Bonds payable
Discount on bonds payable
(91,472)
(100,000)
3,472
(225,000)
(125,000)
(587,000)
Common stock
(325,000)
Preferred stock
Retained earnings, 12/31/21
(960,000)
Total liabilities and equities
$(1,693,252)
$(1,125,000)
Note: Credits are indicated by parentheses.
a. What consolidation worksheet adjustments would have been required as of January 1, 2020, to eliminate the
subsidiary's common and preferred stocks?
b. What consolidation worksheet adjustments would have been required as of December 31, 202O, to account for
Mona's purchase of Lisa's bonds?
c. What consolidation worksheet adjustments would have been required as of December 31, 2020, to account for
the intra-entity sale of fixed assets?
d. Assume that consolidated financial statements are being prepared for the year ending December 31, 2021.
Calculate the consolidated balance for each of the following accounts:
Franchises
Fixed Assets
Accumulated Depreciation
Expenses](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa92125e1-6c9a-413f-8430-8fbeeff84ac1%2F4f2465be-4ceb-40ed-a633-5c6cd32339d7%2Fl9lfd5m_processed.jpeg&w=3840&q=75)
![On January 1, 2020, Mona, Inc., acquired 80 percent of Lisa Company's common stock as well as 60 percent of its
preferred shares. Mona paid $90,000 in cash for the preferred stock, with a call value of 110 percent of the $50 per
share par value. The remaining 40 percent of the preferred shares traded at a $59,000 fair value. Mona paid
$596,000 for the common stock. At the acquisition date, the noncontrolling interest in the common stock had a fair
value of $149,000. The excess fair value over Lisa's book value was attributed to franchise contracts of $76,000.
This intangible asset is being amortized over a 40-year period. Lisa pays all preferred stock dividends (a total of
$33,000 per year) on an annual basis. During 2020, Lisa's book value increased by $82,000.
On January 2, 2020, Mona acquired one-half of Lisa's outstanding bonds payable to reduce the business
combination's debt position. Lisa's bonds had a face value of $100,000 and paid cash interest of 8 percent per year.
These bonds had been issued to the public to yield 10 percent. Interest is paid each December 31. On January 2,
2020, these bonds had a total $93,660 carrying amount. Mona paid $53,465, indicating an effective interest rate of
6 percent.
On January 3, 2020, Mona sold Lisa fixed assets that had originally cost $125,000 but had accumulated
depreciation of $50,000 when transferred. The transfer was made at a price of $170,000. These assets were
estimated to have a remaining useful life of 10 years.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa92125e1-6c9a-413f-8430-8fbeeff84ac1%2F4f2465be-4ceb-40ed-a633-5c6cd32339d7%2Fcy871hm_processed.jpeg&w=3840&q=75)
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