Chapter 3, Problem 3.27P

a.

To determine

  $\$270,000$

Concept introduction

The consolidation process is the process of adding all the financial values of all the associate companies into one final financial report as of the parent company.

To prepare: The equity method entry related to the investment.

Answer to Problem 3.27P

The equity method entries are recorded.

Explanation of Solution

Equity method journal entries are as follows:

Particular	Dr $	Cr $
Investment in S corporation Dr.
Cash Cr.		$\$270,000$
Being initial investment in S co recorded
Investment Dr.	$\$67,500$
Income from S Cr.		$\$67,500$
Being P co.’s 90% share of S co.’s 2008 income recorded
Cash Dr.	$\$18,000$
Investment in S corporation Cr. Being P co.’s 90% share of S co.’s 2008 dividend recorded		$\$18,000$

b.

To determine

Concept introduction

Consolidated balance sheets and worksheets are the tools that are used to calculate the retained earnings and the dividends produce by the subsidiaries towards its parent company.

To prepare: The consolidate worksheet of the final values by the company.

Answer to Problem 3.27P

The consolidate worksheet is provided and discussed.

Explanation of Solution

Book Value:

	NCI10%	+	P CO.90%	=	Common Stock	+	Retained Earnings
Original Book Value	$30000$		$270000$		$200000$		$100000$
+Net Income	$7500$		$67500$				$75000$
-Dividends	$(2000)$		$(18000)$				$(20000)$
Ending book Value	$35500$		$319500$		$200000$		$155000$

Consolidated worksheet:

Income statement	P co$\left(\$\right)$	S co$\left(\$\right)$	Eliminate DR $\left(\$\right)$	EliminateCR $\left(\$\right)$	consolidated$\left(\$\right)$
Sales	$800,000$	$250,000$			$1050,000$
Less: COGS	$(200,000)$	$(1,25,000)$			$(325,000)$
Less: Depreciation	$(50,000)$	$(10,000)$			$(60,000)$
Less: Other Expenses	$(2,25,000)$	$(40,000)$			$(265,000)$
Income from S co.	$65,000$		$65,000$		$0$
Consolidated Net Income	$3,92,000$	$75,000$	$65,000$		$4,00,000$
NCI in Net Income			$7,500$		$(7,500)$
Controlling interest in net income	$3,92,000$	$75,000$	$75,000$		$3,92,000$

Statement of Retained Earnings	P co$\left(\$\right)$	S co$\left(\$\right)$	Eliminate DR $\left(\$\right)$	EliminateCR $\left(\$\right)$	consolidated$\left(\$\right)$
Beginning Balance	$2,25,000$	$1,00,000$	$1,00,000$		$2,25,000$
Net Income	$3,92,500$	$75,000$	$75,000$		$3,92,500$
Less: Dividends Declared	$(1,00,000)$	$(20,000)$		$20,000$	$(1,00,000)$
Ending Balance	$5,17,500$	$1,55,000$	$1,75,000$	$20,000$	$5,17,500$

Balance Sheet	P co$\left(\$\right)$	S co$\left(\$\right)$	Eliminate DR $\left(\$\right)$	EliminateCR $\left(\$\right)$	consolidated$\left(\$\right)$
Cash	$158000$	$80000$			$238000$
Account Receivables	$165000$	$65000$			$230000$
Inventory	$200000$	$75000$			$275000$
Investment In S Co.	$319500$			$319500$	$0$
Land	$200000$	$100000$			$300000$
Buildings & Equipment	$700000$	$200000$		$10000$	$890000$
Less: Accumulated Depreciation	$(450000)$	$(20000)$	$10000$		$(460000)$
Total Assets	$1292500$	$500000$	$10000$	$329500$	$1473000$
Account Payable	$75000$	$60000$			$135000$
Bonds Payable	$200000$	$85000$			$285000$
Common Stock	$500000$	$200000$	$200000$		$500000$
Retained Earnings	$517500$	$155000$	$175000$	$20000$	$517500$
NCI in NA S Co.				$35500$	$35500$
Total Liabilities	$1292500$	$500000$	$10000$	$329500$	$1473000$