Chapter 2, Problem 2.22P

Consolidated Worksheet at End of the Second Year of Ownership (Equity Method)
Peanut Company acquired 100 percent of Snoopy Company’s outstanding common stock for
$300,000 on January 1, 20X8, when the book value of Snoopy’s net assets was equal to $300,000.
Problem 2-21 summarizes the first year Peanut’s ownership of Snoopy. Peanut uses the equity method to account for investments. The following Trial balance summarizes the financial position and operations for Peanut and Snoopy as of December 31, 20X9:
  

Required
a. Prepare any equity-method journal entry(ies) related to the investment in Snoopy Company during 20X9.
b. Prepare a consolidation worksheet for 20X9 in good form.

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 for the year $2009$ .

Explanation of Solution

Particular	Debit	Credit
Equity method entry on books
Investment in S co.	300,000
Cash		300,000
Record P co. $100\%$ share of the S co. $2009$ income
Investment in S	80,000
Income from S		80,000
(To record P share in S income )
Income from S	$30,000$
Investment in the S co.		$30,000$
Record P co. share in S co. Dividend
Total

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

Answer to Problem 2.22P

The consolidated worksheet is prepared and discussed.

Explanation of Solution

Book value calculation
	Total book value	=	Common stock	+	Retained earnings
Book value	$355,000$		$200,000$		$155,000$
Net income	$80,000$				$80000$
Dividend	$30,000$				$30000$
Ending book value	$405,000$		$200,000$		$205,000$

Income statement	P	S	Dr.	Cr.	consolidated
Sales	$850000$	$300000$			$1150000$
Less Cogs	$\left(270000\right)$	$(150000)$			$(420000)$
Depreciation Exp	$(50000)$	$(10000)$			$(60000)$
Sel. Exp	$(230000)$	$(60000)$			$(290000)$
Income from S	$80000$		$80000$
Net income	$380000$	$80000$	$80000$		$380000$
Statement of Retain Earning	P	S	Dr.	Cr.	Consolidated
Opening balance	$525000$	$155000$	$155000$		$525000$
Net income	$380000$	$80000$	$80000$		$380000$
Less dividend declared	$(225000)$	$(30000)$		$30000$	$225000$
End balance	$680000$	$205000$	$235000$	$30000$	$680000$

Income statement	P co	S co	Eliminated DR	Eliminated CR	consolidated
Cash	$230,000$	$75,000$			$305,000$
Accounts received	$190,000$	$80,000$			$270,000$
Inventory	$180,000$	$100,000$			$280,000$
Investment in scissor co	$405,000$			$405,000$	$0$
Land	$200000$	$100,000$			$300,000$
Building and equipment	$700,000$	$200,000$		$10,000$	$890,000$
Less accumulated depreciation	$500,000$	$30,000$			$520,000$
Total assets	$1,405,000$	$525,000$	$10,000$	$415,000$	$1,525,000$
Account payable	$75,000$	$35,000$
Bonds	$150,000$	$85000$
Common stocks	$500,000$	$200,000$	$200,000$
Retained earnings	$680,000$	$205,000$	$235,000$	$30,000$
Total liabilities	$1,405,000$	$525,000$	$435,000$	$30,000$	$1,525,000$