Chapter 2, Problem 2.26P

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 $2009$ .

Answer to Problem 2.26P

The journal entry so passed gives a debit of investment and credit the cash with the same amount.

Explanation of Solution

Particular	Debit	Credit
Equity method entry on paper’s co.’s books
Investment in S	370,000
Cash		370,000
(Record paper co. $100\%$ share of the scissor co. $2009$)
Investment in S	$107,000$
Income received from S company		$107,000$
(Record paper co. $100\%$ share of the scissor co. $2009$ income)
Cash	$30,000$
Investment in the scissor co.		$30,000$
Record paper co. share in scissor co. dividend

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 2.26P

The consolidated worksheet is prepared and discussed.

Explanation of Solution

Book value calculation
	Total book value	=	Common stock	+	Retained earnings
Book value	$438,000$		$250,000$		$188,000$
Net income	$107,000$				$107,000$
Dividend	$30,000$				$30,000$
Ending book value	$515,000$		$250,000$		$265,000$

Income statement	P	S	Dr.	Cr.	consolidated
Sales	$880,000$	$355,000$			$1,235,000$
Less Cogs	$\left(278,000\right)$	$(178,000)$			$(456,000)$
Depreciation Exp	$(65,000)$	$(12,000)$			$(77,000)$
Sel. Exp	$(312,000)$	$(58,000)$			$(370,000)$
Income from S	$107,000$		$107,000$
Net income	$332,000$	$107,000$	$107,000$		$332,000$

Statement of Retain Earning	P	S	Dr.	Cr.	Consolidated
Opening balance	$498,000$	$188,000$	$188,000$		$498,000$
Net income	$332,000$	$107,000$	$107,000$		$332,000$
Less dividend declared	$(90,000)$	$(30,000)$		$30,000$	$90,000$
End balance	$740,000$	$265,000$	$295,000$	$30,000$	$740,000$

Income statement	Paper co	Scissor co	Eliminated DR	Eliminated CR	consolidated
Cash	$232,000$	$116,000$			$348,000$
Accounts received	$165,000$	$97,000$			$262,000$
Inventory	$193,000$	$115,000$			$308,000$
Investment in scissor co	$515,000$				$0$
Land	$250,000$				$375,000$
Building and equipment	$875,000$	$250,000$		$24,000$	$1,101,000$
Less accumulated depreciation	$630,000$	$48000$	$24,000$		$654,000$
Total assets	$1,600,000$	$655,000$			$1,740,000$
Account payable	$85,000$	$40,000$			$125,000$
Bonds	$150,000$	$100,000$			$250,000$
Common stocks	$625,000$	$250,000$	$250,000$		$625,000$
Retained earnings	$740,000$	$265,000$	$295,000$	$30,000$	$740,000$
Total liabilities	$1,600,000$	$655,000$	$545,000$	$30,000$	$1,740,000$