Chapter 2, Problem 2.27BP

a.

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: A journal entry by cost method for the investment in S company in the year $2008$ .

Answer to Problem 2.27BP

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

Explanation of Solution

Particular	Debit	Credit
Cost method entry on books
Investment in S co.	$300,000$
Cash		$300,000$
The initial investment in S co. $2008$ income
Cash	$20,000$
Investment in the S co.		$20,000$
Record P co. share in S co. dividend
Total	$320,000$	$320,000$

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 2.27BP

The consolidated worksheet is prepared and discussed.

Explanation of Solution

Book value calculation
	Total book value	=	Common stock	+	Retained earnings
Initial book value	$300,000$		$200,000$		$100,000$

Income statement	P	S	Dr.	Cr.	consolidated
Sales	$800,000$	$250,000$			$1,050,000$
Less Cogs	$\left(200,000\right)$	$(125,000)$			$(325,000)$
Depreciation Exp	$(50,000)$	$(10,000)$			$(60,000)$
Sel. Exp	$(225,000)$	$(40,000)$			$(265,000)$
Income from S	$20,000$		$20,000$
Net income	$345,000$	$75,000$	$20,000$		$400,000$

Statement of Retain Earning	P	S	Dr.	Cr.	Consolidated
Opening balance	$225,000$	$100,000$	$100,000$		$225000$
Net income	$345,000$	$75,000$	$20,000$		$400,000$
Less dividend declared	$(100,000)$	$(20,000)$		$20,000$	$(100,000)$
End balance	$470,000$	$155,000$	$120,000$	$20,000$	$525,000$

Income statement	P co	S co	Eliminated DR	Eliminated CR	consolidated
Cash	$130,000$	$80,000$			$210,000$
Accounts received	$165,000$	$65,000$			$230,000$
Inventory	$200,000$	$75,000$			$275,000$
Investment in S co	$300,000$			$300,000$	$0$
Land	$200,000$	$100,000$			$300,000$
Building and equipment	$700,000$	$200,000$		$10,000$	$890,000$
Less accumulated depreciation	$450,000$	$20,000$	$10,000$		$460,000$
Total assets	$1,245,000$	$500,000$	$10,000$	$310,000$	$1,445,000$
Account payable	$75,000$	$60,000$			$135,000$
Bonds	$200,000$	$85,000$			$285,000$
Common stocks	$500,000$	$200,000$	$200,000$		$500,000$
Retained earnings	$470,000$	$155,000$	$120,000$	$20,000$	$525,000$
Total liabilities	$1,245,000$	$500,000$	$320,0000$	$20,000$	$1,445,000$