Chapter 2, Problem 2.25P

a.

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 scissors company in the year $2008$ .

Explanation of Solution

Particular	Dr.	Cr.
Equity method entry on paper’s co.’s books
Investment in scissor co.  Dr.	$370,000$
Cash  Cr.		$370,000$
Record initial investment in scissor co.
Investment in scissor co.  Dr.	$93,000$
Income from scissor co.  Cr.		$93,000$
Cash  Dr.	$25,000$
Investment in S  Cr.		$25,000$
Record paper co. share in scissor co. dividend
Total	$488,000$	$488,000$

b.

To determine

Concept 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 2.25P

The consolidated worksheet is prepared and discussed.

Explanation of Solution

Book value calculation
	Total book value	=	Common stock	+	Retained earnings
Book value	$370,000$		$250,000$		$120,000$
Net income	$93,000$				$93,000$
Dividend	$25,000$				$25,000$
Ending book value	$438,$		$250,000$		$188,000$

Income statement	P	S	Dr.	Cr.	consolidated
Sales	$800000$	$310000$			$1110000$
Less Cogs	$\left(250000\right)$	$(155000)$			$(405000)$
Depreciation Exp	$(65000)$	$(12000)$			$(77000)$
Sel. Exp	$(280000)$	$(50000)$			$(330000)$
Income	$93000$		$93000$
Net income	$298000$	$93000$	$93000$		$298000$

Statement of Retain Earning	P	S	Dr.	Cr.	Consolidated
Opening balance	$280000$	$120000$	$120000$		$280000$
Net income	$298000$	$93000$	$93000$		$298000$
Less dividend declared	$(80000)$	$(25000)$		$25000$	$(80000)$
End balance	$498000$	$188000$	$213000$	$25000$	$498000$

Income statement	Paper co	Scissor co	Eliminated DR	Eliminated CR	consolidated
Cash	$122,000$	$46,000$			$168,000$
Accounts received	$140,000$	$60,000$			$200,000$$310,000$
Inventory	$190,000$	$120,000$
Investment in scissor co	$438,000$	$$		$438,000$	$0$
Land	$250,000$	$125,000$			$375,000$
Building and equipment	$875,000$	$250,000$		$24,000$	$1,101,000$
Less accumulated depreciation	$565,000$	$36,000$			$577,000$
Total assets	$1,450,000$	$565,000$		$462,000$	$1,577,000$
Account payable	$77000$	$27,000$			$104,000$
Bonds	$250,000$	$100,000$			$325,000$
Common stocks	$625,000$	$250,000$	$250,000$		$625,000$
Retained earnings	$498,000$	$188,000$	$213,000$	$25,000$	$498,000$
Total liabilities	$1,450,000$	$565,000$	$463,000$	$25,000$	$1,577,000$