Explain how the parent company's pre-consolidation Investment Income for the year ended Dec 31, 2016 is assessed.

Question

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Answer 1

Question

Chapter 3, Problem 54P

a.

To determine

Explain how the parent company's pre-consolidation Investment Income for the

year ended Dec 31, 2016 is assessed.

a.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

Investment income is revenue derived from interest payments, dividends, capital gains collected when a security or other resources are sold, and any other profits made through any kind of investment fund. Individuals usually earn most of their total net income annually through regular wage income. Under the cost method, parent’s company reported investment income for the year ended Dec 31, 2016 is equal to the dividends of the subsidiary under the cost method. Hence, the parent company's reported Investment Income for the year ended Dec 31, 2016 is $13,600

b.

To determine

Explain how the parent company's reported Equity Investment balance as of Dec 31,

2016 is assessed.

b.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange. Under the cost method, that is the subsidiary's original purchase price. Hence, the parent company's reported Equity Investment balance as of Dec 31, 2016 is $704,000

c.

To determine

Assess the retained earnings balance of the subsidiary as of the date of acquisition.

c.

Expert Solution

Explanation of Solution

Retained earnings (RE) is the part of the profit left over to the business after its shareholders have paid out dividends.

The computations to yield the retained earnings balance of the subsidiary as of the date of acquisition are as follows:

Particulars	Amount ($)
Investment balance (cost)	$704,000
Less: AAP on acquisition date	$362,000
Less: Common stock (S) on acquisition date	$44,000
Less: APIC (S) on acquisition date	$55,200
Retained earnings (S) on acquisition date	$242,800

Table (1)

Working notes:

Equity Investment on the date of acquisition is $704,000

AAP on the acquisition date is $362,000

Common stock of subsidiary on the date of acquisition is $44,000.

APIC of subsidiary on the date of acquisition is $55,200.

Hence, the retained earnings balance of the subsidiary as of the date of acquisition is $242,800

d.

To determine

Compute the Equity Investment balance at Dec 31, 2016.

d.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

Using the equity method, Equity Investment would be equivalent to the book value of the shareholders' equity of the subsidiary plus the unamortized AAP balance:

Particulars	Amount ($)
EOY Book value of subsidiary’s Stockholders’ Equity	$518,800
EOY Unamortized balance of the AAP	$262,800
EOY Equity Investment (Equity method)	$781,600

Table (1)

Working notes:

Common stock of the subsidiary is $44,000

APIC of the subsidiary is $55,200

Retained Earnings of the subsidiary is $419,600

AAP amortization on PPE (net) and patent is $24,800($4,800+$16,000+$4,000)

EOY Unamortized balance of the AAP is ($362,000)−($24,800×4)=$262,800

Hence, EOY Equity Investment (Equity method) is $781,600

e.

To determine

Prepare the [ADJ] entry necessary to bring Equity Investment from its current balance (using cost method) to the required balance on January 1, 2016 (using equity method).

e.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The consolidation journal entry [ADJ] increases the retained earnings of the parent's BOY to the balance which would have been reported if the parent used the equity method. The adjustment amount is equal to the change in the retained earnings of the subsidiary from the date of acquisition until the beginning of the consolidation year, adjusted for the cumulative AAP amortization that would have been recognized through the BOY.

Calculate the amount of adjustment:

[ADJ] is ($419,600−$242,800)−(3×$24,800)=$23,600

The [ADJ] entry necessary to bring Equity Investment from its current balance (using cost method) to the required balance on January 1, 2016 (using equity method) is as follows:

Date	Accounting Explanation	Amount ($)	Amount ($)

	Equity Investment	$23,600
	Retained Earnings (P)		$23,600
	(to adjust the parent’s Retained Earnings to its proper balance under equity method)

Table (1)

f.

To determine

Prepare the consolidation entries for the year ended Dec 31, 2016.

f.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[C] Dividend Income (P)		$13,600
	Dividends (S)			$13,600
	(To eliminate all changes in the Equity Investment account, leaving only beginning balance in the account. Note: no equity income since the parent uses the cost method.)

	[E] BOY Common Stock (S)		$44,000
	BOY APIC (S)		$55,200
	BOY Retained Earnings (S)		$340,800
	Equity Investment			$440,000
	(To eliminate the portion of the investment account related to the book value of the subsidiary's stockholders' equity @ BOY)

	[A] PPE, net (S) @ BOY		$33,600
	Licenses (S) @ BOY		$80,000
	Customer List (S) @ BOY		$4,000
	Goodwill (S) @ BOY		$170,000
	Equity Investment (P) @ BOY			$287,600
	(To assign the remaining Equity Investment account (i.e., unamortized BOY AAP) to appropriate asset & liability accounts)
	[D] EOY Operating expenses		$24,800
	PPE, net (S)			$4,800
	Licenses (S)			$40,000
	Customer List (S)			$4,000
	(To record depreciation and amortization expense for the [A] assets)

	[I] No intercompany transactions

Table (1)

g.

To determine

Prepare the consolidation spreadsheet for the year ended December 31, 2016.

g.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

The consolidated spreadsheet for the year ended December 31, 2016 is shown below:

				Elimination entries
Income Statement	Parent	Subsidiary		Dr		Cr	Consolidated
Sales	3,024,800	660,000					3,684,800
Cost of goods sold	(2,178,000)	(396,000)					(2,574,000)
Gross Profit	846,800	264,000					1,110,800
Investment Income	13,600		[C]	13,600			0
Operating Expenses	(453,600)	(171,600)	[D]	24,800			(650,000)
Net Income	406,800	92,400					460,800

Statement of Retained Earnings
Beginning Retained Earnings	1,309,480	340,800	[E]	340,800	[ADJ]	23,600	1,333,080
Net Income	406,800	92,400					460,800
Dividends	(95,480)	(13,600)			[C]	13,600	(95,480)
Ending retained Earnings	1,620,800	419,600					1,698,400

Balance Sheet
Assets
Cash	$570,000	$170,000					$740,000
Accounts receivable	495,600	153,200					648,800
Inventory	1,173,600	196,800					1,370,400
Equity investment	704,000		[ADJ]	23,600	[E]	440,000	0
					[A]	287,600
PPE, net	1,450,800	364,000	[A]	33,600	[D]	4,800	1,843,600
Licenses			[A]	80,000	[D]	16,000	64,000
Customer List				4,000		4,000	0
Goodwill			[A]	170,000			170,000
	$4,394,000	$884,000					$4,836,800

Liabilities and Stockholder's Equity
Accounts payable	362,800	$62,800					425,600
Accrued liabilities	206,400	82,400					288,800
Long-term Liabilities	1,050,000	220,000					1,270,000
Common stock	282,000	44,000	[E]	44,000			282,000
APIC	872,000	55,200	[E]	55,200			872,000
Retained earnings	1,620,800	419,600					1,698,400

	$4,394,000	$884,000		$789,600		$789,600	4,836,800

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Answer 2

Question

Chapter 3, Problem 54P

a.

To determine

Explain how the parent company's pre-consolidation Investment Income for the

year ended Dec 31, 2016 is assessed.

a.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

Investment income is revenue derived from interest payments, dividends, capital gains collected when a security or other resources are sold, and any other profits made through any kind of investment fund. Individuals usually earn most of their total net income annually through regular wage income. Under the cost method, parent’s company reported investment income for the year ended Dec 31, 2016 is equal to the dividends of the subsidiary under the cost method. Hence, the parent company's reported Investment Income for the year ended Dec 31, 2016 is $13,600

b.

To determine

Explain how the parent company's reported Equity Investment balance as of Dec 31,

2016 is assessed.

b.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange. Under the cost method, that is the subsidiary's original purchase price. Hence, the parent company's reported Equity Investment balance as of Dec 31, 2016 is $704,000

c.

To determine

Assess the retained earnings balance of the subsidiary as of the date of acquisition.

c.

Expert Solution

Explanation of Solution

Retained earnings (RE) is the part of the profit left over to the business after its shareholders have paid out dividends.

The computations to yield the retained earnings balance of the subsidiary as of the date of acquisition are as follows:

Particulars	Amount ($)
Investment balance (cost)	$704,000
Less: AAP on acquisition date	$362,000
Less: Common stock (S) on acquisition date	$44,000
Less: APIC (S) on acquisition date	$55,200
Retained earnings (S) on acquisition date	$242,800

Table (1)

Working notes:

Equity Investment on the date of acquisition is $704,000

AAP on the acquisition date is $362,000

Common stock of subsidiary on the date of acquisition is $44,000.

APIC of subsidiary on the date of acquisition is $55,200.

Hence, the retained earnings balance of the subsidiary as of the date of acquisition is $242,800

d.

To determine

Compute the Equity Investment balance at Dec 31, 2016.

d.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

Using the equity method, Equity Investment would be equivalent to the book value of the shareholders' equity of the subsidiary plus the unamortized AAP balance:

Particulars	Amount ($)
EOY Book value of subsidiary’s Stockholders’ Equity	$518,800
EOY Unamortized balance of the AAP	$262,800
EOY Equity Investment (Equity method)	$781,600

Table (1)

Working notes:

Common stock of the subsidiary is $44,000

APIC of the subsidiary is $55,200

Retained Earnings of the subsidiary is $419,600

AAP amortization on PPE (net) and patent is $24,800($4,800+$16,000+$4,000)

EOY Unamortized balance of the AAP is ($362,000)−($24,800×4)=$262,800

Hence, EOY Equity Investment (Equity method) is $781,600

e.

To determine

Prepare the [ADJ] entry necessary to bring Equity Investment from its current balance (using cost method) to the required balance on January 1, 2016 (using equity method).

e.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The consolidation journal entry [ADJ] increases the retained earnings of the parent's BOY to the balance which would have been reported if the parent used the equity method. The adjustment amount is equal to the change in the retained earnings of the subsidiary from the date of acquisition until the beginning of the consolidation year, adjusted for the cumulative AAP amortization that would have been recognized through the BOY.

Calculate the amount of adjustment:

[ADJ] is ($419,600−$242,800)−(3×$24,800)=$23,600

The [ADJ] entry necessary to bring Equity Investment from its current balance (using cost method) to the required balance on January 1, 2016 (using equity method) is as follows:

Date	Accounting Explanation	Amount ($)	Amount ($)

	Equity Investment	$23,600
	Retained Earnings (P)		$23,600
	(to adjust the parent’s Retained Earnings to its proper balance under equity method)

Table (1)

f.

To determine

Prepare the consolidation entries for the year ended Dec 31, 2016.

f.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[C] Dividend Income (P)		$13,600
	Dividends (S)			$13,600
	(To eliminate all changes in the Equity Investment account, leaving only beginning balance in the account. Note: no equity income since the parent uses the cost method.)

	[E] BOY Common Stock (S)		$44,000
	BOY APIC (S)		$55,200
	BOY Retained Earnings (S)		$340,800
	Equity Investment			$440,000
	(To eliminate the portion of the investment account related to the book value of the subsidiary's stockholders' equity @ BOY)

	[A] PPE, net (S) @ BOY		$33,600
	Licenses (S) @ BOY		$80,000
	Customer List (S) @ BOY		$4,000
	Goodwill (S) @ BOY		$170,000
	Equity Investment (P) @ BOY			$287,600
	(To assign the remaining Equity Investment account (i.e., unamortized BOY AAP) to appropriate asset & liability accounts)
	[D] EOY Operating expenses		$24,800
	PPE, net (S)			$4,800
	Licenses (S)			$40,000
	Customer List (S)			$4,000
	(To record depreciation and amortization expense for the [A] assets)

	[I] No intercompany transactions

Table (1)

g.

To determine

Prepare the consolidation spreadsheet for the year ended December 31, 2016.

g.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

The consolidated spreadsheet for the year ended December 31, 2016 is shown below:

				Elimination entries
Income Statement	Parent	Subsidiary		Dr		Cr	Consolidated
Sales	3,024,800	660,000					3,684,800
Cost of goods sold	(2,178,000)	(396,000)					(2,574,000)
Gross Profit	846,800	264,000					1,110,800
Investment Income	13,600		[C]	13,600			0
Operating Expenses	(453,600)	(171,600)	[D]	24,800			(650,000)
Net Income	406,800	92,400					460,800

Statement of Retained Earnings
Beginning Retained Earnings	1,309,480	340,800	[E]	340,800	[ADJ]	23,600	1,333,080
Net Income	406,800	92,400					460,800
Dividends	(95,480)	(13,600)			[C]	13,600	(95,480)
Ending retained Earnings	1,620,800	419,600					1,698,400

Balance Sheet
Assets
Cash	$570,000	$170,000					$740,000
Accounts receivable	495,600	153,200					648,800
Inventory	1,173,600	196,800					1,370,400
Equity investment	704,000		[ADJ]	23,600	[E]	440,000	0
					[A]	287,600
PPE, net	1,450,800	364,000	[A]	33,600	[D]	4,800	1,843,600
Licenses			[A]	80,000	[D]	16,000	64,000
Customer List				4,000		4,000	0
Goodwill			[A]	170,000			170,000
	$4,394,000	$884,000					$4,836,800

Liabilities and Stockholder's Equity
Accounts payable	362,800	$62,800					425,600
Accrued liabilities	206,400	82,400					288,800
Long-term Liabilities	1,050,000	220,000					1,270,000
Common stock	282,000	44,000	[E]	44,000			282,000
APIC	872,000	55,200	[E]	55,200			872,000
Retained earnings	1,620,800	419,600					1,698,400

	$4,394,000	$884,000		$789,600		$789,600	4,836,800

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Answer 3

Question

Chapter 3, Problem 54P

a.

To determine

Explain how the parent company's pre-consolidation Investment Income for the

year ended Dec 31, 2016 is assessed.

a.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

Investment income is revenue derived from interest payments, dividends, capital gains collected when a security or other resources are sold, and any other profits made through any kind of investment fund. Individuals usually earn most of their total net income annually through regular wage income. Under the cost method, parent’s company reported investment income for the year ended Dec 31, 2016 is equal to the dividends of the subsidiary under the cost method. Hence, the parent company's reported Investment Income for the year ended Dec 31, 2016 is $13,600

b.

To determine

Explain how the parent company's reported Equity Investment balance as of Dec 31,

2016 is assessed.

b.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange. Under the cost method, that is the subsidiary's original purchase price. Hence, the parent company's reported Equity Investment balance as of Dec 31, 2016 is $704,000

c.

To determine

Assess the retained earnings balance of the subsidiary as of the date of acquisition.

c.

Expert Solution

Explanation of Solution

Retained earnings (RE) is the part of the profit left over to the business after its shareholders have paid out dividends.

The computations to yield the retained earnings balance of the subsidiary as of the date of acquisition are as follows:

Particulars	Amount ($)
Investment balance (cost)	$704,000
Less: AAP on acquisition date	$362,000
Less: Common stock (S) on acquisition date	$44,000
Less: APIC (S) on acquisition date	$55,200
Retained earnings (S) on acquisition date	$242,800

Table (1)

Working notes:

Equity Investment on the date of acquisition is $704,000

AAP on the acquisition date is $362,000

Common stock of subsidiary on the date of acquisition is $44,000.

APIC of subsidiary on the date of acquisition is $55,200.

Hence, the retained earnings balance of the subsidiary as of the date of acquisition is $242,800

d.

To determine

Compute the Equity Investment balance at Dec 31, 2016.

d.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

Using the equity method, Equity Investment would be equivalent to the book value of the shareholders' equity of the subsidiary plus the unamortized AAP balance:

Particulars	Amount ($)
EOY Book value of subsidiary’s Stockholders’ Equity	$518,800
EOY Unamortized balance of the AAP	$262,800
EOY Equity Investment (Equity method)	$781,600

Table (1)

Working notes:

Common stock of the subsidiary is $44,000

APIC of the subsidiary is $55,200

Retained Earnings of the subsidiary is $419,600

AAP amortization on PPE (net) and patent is $24,800($4,800+$16,000+$4,000)

EOY Unamortized balance of the AAP is ($362,000)−($24,800×4)=$262,800

Hence, EOY Equity Investment (Equity method) is $781,600

e.

To determine

Prepare the [ADJ] entry necessary to bring Equity Investment from its current balance (using cost method) to the required balance on January 1, 2016 (using equity method).

e.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The consolidation journal entry [ADJ] increases the retained earnings of the parent's BOY to the balance which would have been reported if the parent used the equity method. The adjustment amount is equal to the change in the retained earnings of the subsidiary from the date of acquisition until the beginning of the consolidation year, adjusted for the cumulative AAP amortization that would have been recognized through the BOY.

Calculate the amount of adjustment:

[ADJ] is ($419,600−$242,800)−(3×$24,800)=$23,600

The [ADJ] entry necessary to bring Equity Investment from its current balance (using cost method) to the required balance on January 1, 2016 (using equity method) is as follows:

Date	Accounting Explanation	Amount ($)	Amount ($)

	Equity Investment	$23,600
	Retained Earnings (P)		$23,600
	(to adjust the parent’s Retained Earnings to its proper balance under equity method)

Table (1)

f.

To determine

Prepare the consolidation entries for the year ended Dec 31, 2016.

f.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[C] Dividend Income (P)		$13,600
	Dividends (S)			$13,600
	(To eliminate all changes in the Equity Investment account, leaving only beginning balance in the account. Note: no equity income since the parent uses the cost method.)

	[E] BOY Common Stock (S)		$44,000
	BOY APIC (S)		$55,200
	BOY Retained Earnings (S)		$340,800
	Equity Investment			$440,000
	(To eliminate the portion of the investment account related to the book value of the subsidiary's stockholders' equity @ BOY)

	[A] PPE, net (S) @ BOY		$33,600
	Licenses (S) @ BOY		$80,000
	Customer List (S) @ BOY		$4,000
	Goodwill (S) @ BOY		$170,000
	Equity Investment (P) @ BOY			$287,600
	(To assign the remaining Equity Investment account (i.e., unamortized BOY AAP) to appropriate asset & liability accounts)
	[D] EOY Operating expenses		$24,800
	PPE, net (S)			$4,800
	Licenses (S)			$40,000
	Customer List (S)			$4,000
	(To record depreciation and amortization expense for the [A] assets)

	[I] No intercompany transactions

Table (1)

g.

To determine

Prepare the consolidation spreadsheet for the year ended December 31, 2016.

g.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

The consolidated spreadsheet for the year ended December 31, 2016 is shown below:

				Elimination entries
Income Statement	Parent	Subsidiary		Dr		Cr	Consolidated
Sales	3,024,800	660,000					3,684,800
Cost of goods sold	(2,178,000)	(396,000)					(2,574,000)
Gross Profit	846,800	264,000					1,110,800
Investment Income	13,600		[C]	13,600			0
Operating Expenses	(453,600)	(171,600)	[D]	24,800			(650,000)
Net Income	406,800	92,400					460,800

Statement of Retained Earnings
Beginning Retained Earnings	1,309,480	340,800	[E]	340,800	[ADJ]	23,600	1,333,080
Net Income	406,800	92,400					460,800
Dividends	(95,480)	(13,600)			[C]	13,600	(95,480)
Ending retained Earnings	1,620,800	419,600					1,698,400

Balance Sheet
Assets
Cash	$570,000	$170,000					$740,000
Accounts receivable	495,600	153,200					648,800
Inventory	1,173,600	196,800					1,370,400
Equity investment	704,000		[ADJ]	23,600	[E]	440,000	0
					[A]	287,600
PPE, net	1,450,800	364,000	[A]	33,600	[D]	4,800	1,843,600
Licenses			[A]	80,000	[D]	16,000	64,000
Customer List				4,000		4,000	0
Goodwill			[A]	170,000			170,000
	$4,394,000	$884,000					$4,836,800

Liabilities and Stockholder's Equity
Accounts payable	362,800	$62,800					425,600
Accrued liabilities	206,400	82,400					288,800
Long-term Liabilities	1,050,000	220,000					1,270,000
Common stock	282,000	44,000	[E]	44,000			282,000
APIC	872,000	55,200	[E]	55,200			872,000
Retained earnings	1,620,800	419,600					1,698,400

	$4,394,000	$884,000		$789,600		$789,600	4,836,800

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Answer 4

Question

Chapter 3, Problem 54P

a.

To determine

Explain how the parent company's pre-consolidation Investment Income for the

year ended Dec 31, 2016 is assessed.

a.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

Investment income is revenue derived from interest payments, dividends, capital gains collected when a security or other resources are sold, and any other profits made through any kind of investment fund. Individuals usually earn most of their total net income annually through regular wage income. Under the cost method, parent’s company reported investment income for the year ended Dec 31, 2016 is equal to the dividends of the subsidiary under the cost method. Hence, the parent company's reported Investment Income for the year ended Dec 31, 2016 is $13,600

b.

To determine

Explain how the parent company's reported Equity Investment balance as of Dec 31,

2016 is assessed.

b.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange. Under the cost method, that is the subsidiary's original purchase price. Hence, the parent company's reported Equity Investment balance as of Dec 31, 2016 is $704,000

c.

To determine

Assess the retained earnings balance of the subsidiary as of the date of acquisition.

c.

Expert Solution

Explanation of Solution

Retained earnings (RE) is the part of the profit left over to the business after its shareholders have paid out dividends.

The computations to yield the retained earnings balance of the subsidiary as of the date of acquisition are as follows:

Particulars	Amount ($)
Investment balance (cost)	$704,000
Less: AAP on acquisition date	$362,000
Less: Common stock (S) on acquisition date	$44,000
Less: APIC (S) on acquisition date	$55,200
Retained earnings (S) on acquisition date	$242,800

Table (1)

Working notes:

Equity Investment on the date of acquisition is $704,000

AAP on the acquisition date is $362,000

Common stock of subsidiary on the date of acquisition is $44,000.

APIC of subsidiary on the date of acquisition is $55,200.

Hence, the retained earnings balance of the subsidiary as of the date of acquisition is $242,800

d.

To determine

Compute the Equity Investment balance at Dec 31, 2016.

d.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

Using the equity method, Equity Investment would be equivalent to the book value of the shareholders' equity of the subsidiary plus the unamortized AAP balance:

Particulars	Amount ($)
EOY Book value of subsidiary’s Stockholders’ Equity	$518,800
EOY Unamortized balance of the AAP	$262,800
EOY Equity Investment (Equity method)	$781,600

Table (1)

Working notes:

Common stock of the subsidiary is $44,000

APIC of the subsidiary is $55,200

Retained Earnings of the subsidiary is $419,600

AAP amortization on PPE (net) and patent is $24,800($4,800+$16,000+$4,000)

EOY Unamortized balance of the AAP is ($362,000)−($24,800×4)=$262,800

Hence, EOY Equity Investment (Equity method) is $781,600

e.

To determine

Prepare the [ADJ] entry necessary to bring Equity Investment from its current balance (using cost method) to the required balance on January 1, 2016 (using equity method).

e.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The consolidation journal entry [ADJ] increases the retained earnings of the parent's BOY to the balance which would have been reported if the parent used the equity method. The adjustment amount is equal to the change in the retained earnings of the subsidiary from the date of acquisition until the beginning of the consolidation year, adjusted for the cumulative AAP amortization that would have been recognized through the BOY.

Calculate the amount of adjustment:

[ADJ] is ($419,600−$242,800)−(3×$24,800)=$23,600

The [ADJ] entry necessary to bring Equity Investment from its current balance (using cost method) to the required balance on January 1, 2016 (using equity method) is as follows:

Date	Accounting Explanation	Amount ($)	Amount ($)

	Equity Investment	$23,600
	Retained Earnings (P)		$23,600
	(to adjust the parent’s Retained Earnings to its proper balance under equity method)

Table (1)

f.

To determine

Prepare the consolidation entries for the year ended Dec 31, 2016.

f.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[C] Dividend Income (P)		$13,600
	Dividends (S)			$13,600
	(To eliminate all changes in the Equity Investment account, leaving only beginning balance in the account. Note: no equity income since the parent uses the cost method.)

	[E] BOY Common Stock (S)		$44,000
	BOY APIC (S)		$55,200
	BOY Retained Earnings (S)		$340,800
	Equity Investment			$440,000
	(To eliminate the portion of the investment account related to the book value of the subsidiary's stockholders' equity @ BOY)

	[A] PPE, net (S) @ BOY		$33,600
	Licenses (S) @ BOY		$80,000
	Customer List (S) @ BOY		$4,000
	Goodwill (S) @ BOY		$170,000
	Equity Investment (P) @ BOY			$287,600
	(To assign the remaining Equity Investment account (i.e., unamortized BOY AAP) to appropriate asset & liability accounts)
	[D] EOY Operating expenses		$24,800
	PPE, net (S)			$4,800
	Licenses (S)			$40,000
	Customer List (S)			$4,000
	(To record depreciation and amortization expense for the [A] assets)

	[I] No intercompany transactions

Table (1)

g.

To determine

Prepare the consolidation spreadsheet for the year ended December 31, 2016.

g.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

The consolidated spreadsheet for the year ended December 31, 2016 is shown below:

				Elimination entries
Income Statement	Parent	Subsidiary		Dr		Cr	Consolidated
Sales	3,024,800	660,000					3,684,800
Cost of goods sold	(2,178,000)	(396,000)					(2,574,000)
Gross Profit	846,800	264,000					1,110,800
Investment Income	13,600		[C]	13,600			0
Operating Expenses	(453,600)	(171,600)	[D]	24,800			(650,000)
Net Income	406,800	92,400					460,800

Statement of Retained Earnings
Beginning Retained Earnings	1,309,480	340,800	[E]	340,800	[ADJ]	23,600	1,333,080
Net Income	406,800	92,400					460,800
Dividends	(95,480)	(13,600)			[C]	13,600	(95,480)
Ending retained Earnings	1,620,800	419,600					1,698,400

Balance Sheet
Assets
Cash	$570,000	$170,000					$740,000
Accounts receivable	495,600	153,200					648,800
Inventory	1,173,600	196,800					1,370,400
Equity investment	704,000		[ADJ]	23,600	[E]	440,000	0
					[A]	287,600
PPE, net	1,450,800	364,000	[A]	33,600	[D]	4,800	1,843,600
Licenses			[A]	80,000	[D]	16,000	64,000
Customer List				4,000		4,000	0
Goodwill			[A]	170,000			170,000
	$4,394,000	$884,000					$4,836,800

Liabilities and Stockholder's Equity
Accounts payable	362,800	$62,800					425,600
Accrued liabilities	206,400	82,400					288,800
Long-term Liabilities	1,050,000	220,000					1,270,000
Common stock	282,000	44,000	[E]	44,000			282,000
APIC	872,000	55,200	[E]	55,200			872,000
Retained earnings	1,620,800	419,600					1,698,400

	$4,394,000	$884,000		$789,600		$789,600	4,836,800

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Answer 5

Chapter 3, Problem 54P

a.

To determine

Explain how the parent company's pre-consolidation Investment Income for the

year ended Dec 31, 2016 is assessed.

a.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

Investment income is revenue derived from interest payments, dividends, capital gains collected when a security or other resources are sold, and any other profits made through any kind of investment fund. Individuals usually earn most of their total net income annually through regular wage income. Under the cost method, parent’s company reported investment income for the year ended Dec 31, 2016 is equal to the dividends of the subsidiary under the cost method. Hence, the parent company's reported Investment Income for the year ended Dec 31, 2016 is $13,600

b.

To determine

Explain how the parent company's reported Equity Investment balance as of Dec 31,

2016 is assessed.

b.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange. Under the cost method, that is the subsidiary's original purchase price. Hence, the parent company's reported Equity Investment balance as of Dec 31, 2016 is $704,000

c.

To determine

Assess the retained earnings balance of the subsidiary as of the date of acquisition.

c.

Expert Solution

Explanation of Solution

Retained earnings (RE) is the part of the profit left over to the business after its shareholders have paid out dividends.

The computations to yield the retained earnings balance of the subsidiary as of the date of acquisition are as follows:

Particulars	Amount ($)
Investment balance (cost)	$704,000
Less: AAP on acquisition date	$362,000
Less: Common stock (S) on acquisition date	$44,000
Less: APIC (S) on acquisition date	$55,200
Retained earnings (S) on acquisition date	$242,800

Table (1)

Working notes:

Equity Investment on the date of acquisition is $704,000

AAP on the acquisition date is $362,000

Common stock of subsidiary on the date of acquisition is $44,000.

APIC of subsidiary on the date of acquisition is $55,200.

Hence, the retained earnings balance of the subsidiary as of the date of acquisition is $242,800

d.

To determine

Compute the Equity Investment balance at Dec 31, 2016.

d.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

Using the equity method, Equity Investment would be equivalent to the book value of the shareholders' equity of the subsidiary plus the unamortized AAP balance:

Particulars	Amount ($)
EOY Book value of subsidiary’s Stockholders’ Equity	$518,800
EOY Unamortized balance of the AAP	$262,800
EOY Equity Investment (Equity method)	$781,600

Table (1)

Working notes:

Common stock of the subsidiary is $44,000

APIC of the subsidiary is $55,200

Retained Earnings of the subsidiary is $419,600

AAP amortization on PPE (net) and patent is $24,800($4,800+$16,000+$4,000)

EOY Unamortized balance of the AAP is ($362,000)−($24,800×4)=$262,800

Hence, EOY Equity Investment (Equity method) is $781,600

e.

To determine

Prepare the [ADJ] entry necessary to bring Equity Investment from its current balance (using cost method) to the required balance on January 1, 2016 (using equity method).

e.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The consolidation journal entry [ADJ] increases the retained earnings of the parent's BOY to the balance which would have been reported if the parent used the equity method. The adjustment amount is equal to the change in the retained earnings of the subsidiary from the date of acquisition until the beginning of the consolidation year, adjusted for the cumulative AAP amortization that would have been recognized through the BOY.

Calculate the amount of adjustment:

[ADJ] is ($419,600−$242,800)−(3×$24,800)=$23,600

The [ADJ] entry necessary to bring Equity Investment from its current balance (using cost method) to the required balance on January 1, 2016 (using equity method) is as follows:

Date	Accounting Explanation	Amount ($)	Amount ($)

	Equity Investment	$23,600
	Retained Earnings (P)		$23,600
	(to adjust the parent’s Retained Earnings to its proper balance under equity method)

Table (1)

f.

To determine

Prepare the consolidation entries for the year ended Dec 31, 2016.

f.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[C] Dividend Income (P)		$13,600
	Dividends (S)			$13,600
	(To eliminate all changes in the Equity Investment account, leaving only beginning balance in the account. Note: no equity income since the parent uses the cost method.)

	[E] BOY Common Stock (S)		$44,000
	BOY APIC (S)		$55,200
	BOY Retained Earnings (S)		$340,800
	Equity Investment			$440,000
	(To eliminate the portion of the investment account related to the book value of the subsidiary's stockholders' equity @ BOY)

	[A] PPE, net (S) @ BOY		$33,600
	Licenses (S) @ BOY		$80,000
	Customer List (S) @ BOY		$4,000
	Goodwill (S) @ BOY		$170,000
	Equity Investment (P) @ BOY			$287,600
	(To assign the remaining Equity Investment account (i.e., unamortized BOY AAP) to appropriate asset & liability accounts)
	[D] EOY Operating expenses		$24,800
	PPE, net (S)			$4,800
	Licenses (S)			$40,000
	Customer List (S)			$4,000
	(To record depreciation and amortization expense for the [A] assets)

	[I] No intercompany transactions

Table (1)

g.

To determine

Prepare the consolidation spreadsheet for the year ended December 31, 2016.

g.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

The consolidated spreadsheet for the year ended December 31, 2016 is shown below:

				Elimination entries
Income Statement	Parent	Subsidiary		Dr		Cr	Consolidated
Sales	3,024,800	660,000					3,684,800
Cost of goods sold	(2,178,000)	(396,000)					(2,574,000)
Gross Profit	846,800	264,000					1,110,800
Investment Income	13,600		[C]	13,600			0
Operating Expenses	(453,600)	(171,600)	[D]	24,800			(650,000)
Net Income	406,800	92,400					460,800

Statement of Retained Earnings
Beginning Retained Earnings	1,309,480	340,800	[E]	340,800	[ADJ]	23,600	1,333,080
Net Income	406,800	92,400					460,800
Dividends	(95,480)	(13,600)			[C]	13,600	(95,480)
Ending retained Earnings	1,620,800	419,600					1,698,400

Balance Sheet
Assets
Cash	$570,000	$170,000					$740,000
Accounts receivable	495,600	153,200					648,800
Inventory	1,173,600	196,800					1,370,400
Equity investment	704,000		[ADJ]	23,600	[E]	440,000	0
					[A]	287,600
PPE, net	1,450,800	364,000	[A]	33,600	[D]	4,800	1,843,600
Licenses			[A]	80,000	[D]	16,000	64,000
Customer List				4,000		4,000	0
Goodwill			[A]	170,000			170,000
	$4,394,000	$884,000					$4,836,800

Liabilities and Stockholder's Equity
Accounts payable	362,800	$62,800					425,600
Accrued liabilities	206,400	82,400					288,800
Long-term Liabilities	1,050,000	220,000					1,270,000
Common stock	282,000	44,000	[E]	44,000			282,000
APIC	872,000	55,200	[E]	55,200			872,000
Retained earnings	1,620,800	419,600					1,698,400

	$4,394,000	$884,000		$789,600		$789,600	4,836,800

Answer 6

Chapter 3, Problem 54P

a.

To determine

Explain how the parent company's pre-consolidation Investment Income for the

year ended Dec 31, 2016 is assessed.

a.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

Investment income is revenue derived from interest payments, dividends, capital gains collected when a security or other resources are sold, and any other profits made through any kind of investment fund. Individuals usually earn most of their total net income annually through regular wage income. Under the cost method, parent’s company reported investment income for the year ended Dec 31, 2016 is equal to the dividends of the subsidiary under the cost method. Hence, the parent company's reported Investment Income for the year ended Dec 31, 2016 is $13,600

Answer 7

Chapter 3, Problem 54P

a.

To determine

Explain how the parent company's pre-consolidation Investment Income for the

year ended Dec 31, 2016 is assessed.

Answer 8

a.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

Investment income is revenue derived from interest payments, dividends, capital gains collected when a security or other resources are sold, and any other profits made through any kind of investment fund. Individuals usually earn most of their total net income annually through regular wage income. Under the cost method, parent’s company reported investment income for the year ended Dec 31, 2016 is equal to the dividends of the subsidiary under the cost method. Hence, the parent company's reported Investment Income for the year ended Dec 31, 2016 is $13,600

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

b.

To determine

Explain how the parent company's reported Equity Investment balance as of Dec 31,

2016 is assessed.

b.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange. Under the cost method, that is the subsidiary's original purchase price. Hence, the parent company's reported Equity Investment balance as of Dec 31, 2016 is $704,000

Answer 13

b.

To determine

Explain how the parent company's reported Equity Investment balance as of Dec 31,

2016 is assessed.

Answer 14

b.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange. Under the cost method, that is the subsidiary's original purchase price. Hence, the parent company's reported Equity Investment balance as of Dec 31, 2016 is $704,000

Answer 15

b.

Expert Solution

Answer 16

b.

Expert Solution

Answer 17

Expert Solution

Answer 18

c.

To determine

Assess the retained earnings balance of the subsidiary as of the date of acquisition.

c.

Expert Solution

Explanation of Solution

Retained earnings (RE) is the part of the profit left over to the business after its shareholders have paid out dividends.

The computations to yield the retained earnings balance of the subsidiary as of the date of acquisition are as follows:

Particulars	Amount ($)
Investment balance (cost)	$704,000
Less: AAP on acquisition date	$362,000
Less: Common stock (S) on acquisition date	$44,000
Less: APIC (S) on acquisition date	$55,200
Retained earnings (S) on acquisition date	$242,800

Table (1)

Working notes:

Equity Investment on the date of acquisition is $704,000

AAP on the acquisition date is $362,000

Common stock of subsidiary on the date of acquisition is $44,000.

APIC of subsidiary on the date of acquisition is $55,200.

Hence, the retained earnings balance of the subsidiary as of the date of acquisition is $242,800

Answer 19

c.

To determine

Assess the retained earnings balance of the subsidiary as of the date of acquisition.

Answer 20

c.

Expert Solution

Explanation of Solution

Retained earnings (RE) is the part of the profit left over to the business after its shareholders have paid out dividends.

The computations to yield the retained earnings balance of the subsidiary as of the date of acquisition are as follows:

Particulars	Amount ($)
Investment balance (cost)	$704,000
Less: AAP on acquisition date	$362,000
Less: Common stock (S) on acquisition date	$44,000
Less: APIC (S) on acquisition date	$55,200
Retained earnings (S) on acquisition date	$242,800

Table (1)

Working notes:

Equity Investment on the date of acquisition is $704,000

AAP on the acquisition date is $362,000

Common stock of subsidiary on the date of acquisition is $44,000.

APIC of subsidiary on the date of acquisition is $55,200.

Hence, the retained earnings balance of the subsidiary as of the date of acquisition is $242,800

Answer 21

c.

Expert Solution

Answer 22

c.

Expert Solution

Answer 23

Expert Solution

Answer 24

d.

To determine

Compute the Equity Investment balance at Dec 31, 2016.

d.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

Using the equity method, Equity Investment would be equivalent to the book value of the shareholders' equity of the subsidiary plus the unamortized AAP balance:

Particulars	Amount ($)
EOY Book value of subsidiary’s Stockholders’ Equity	$518,800
EOY Unamortized balance of the AAP	$262,800
EOY Equity Investment (Equity method)	$781,600

Table (1)

Working notes:

Common stock of the subsidiary is $44,000

APIC of the subsidiary is $55,200

Retained Earnings of the subsidiary is $419,600

AAP amortization on PPE (net) and patent is $24,800($4,800+$16,000+$4,000)

EOY Unamortized balance of the AAP is ($362,000)−($24,800×4)=$262,800

Hence, EOY Equity Investment (Equity method) is $781,600

Answer 25

d.

To determine

Compute the Equity Investment balance at Dec 31, 2016.

Answer 26

d.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

Using the equity method, Equity Investment would be equivalent to the book value of the shareholders' equity of the subsidiary plus the unamortized AAP balance:

Particulars	Amount ($)
EOY Book value of subsidiary’s Stockholders’ Equity	$518,800
EOY Unamortized balance of the AAP	$262,800
EOY Equity Investment (Equity method)	$781,600

Table (1)

Working notes:

Common stock of the subsidiary is $44,000

APIC of the subsidiary is $55,200

Retained Earnings of the subsidiary is $419,600

AAP amortization on PPE (net) and patent is $24,800($4,800+$16,000+$4,000)

EOY Unamortized balance of the AAP is ($362,000)−($24,800×4)=$262,800

Hence, EOY Equity Investment (Equity method) is $781,600

Answer 27

d.

Expert Solution

Answer 28

d.

Expert Solution

Answer 29

Expert Solution

Answer 30

e.

To determine

Prepare the [ADJ] entry necessary to bring Equity Investment from its current balance (using cost method) to the required balance on January 1, 2016 (using equity method).

e.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The consolidation journal entry [ADJ] increases the retained earnings of the parent's BOY to the balance which would have been reported if the parent used the equity method. The adjustment amount is equal to the change in the retained earnings of the subsidiary from the date of acquisition until the beginning of the consolidation year, adjusted for the cumulative AAP amortization that would have been recognized through the BOY.

Calculate the amount of adjustment:

[ADJ] is ($419,600−$242,800)−(3×$24,800)=$23,600

The [ADJ] entry necessary to bring Equity Investment from its current balance (using cost method) to the required balance on January 1, 2016 (using equity method) is as follows:

Date	Accounting Explanation	Amount ($)	Amount ($)

	Equity Investment	$23,600
	Retained Earnings (P)		$23,600
	(to adjust the parent’s Retained Earnings to its proper balance under equity method)

Table (1)

Answer 31

e.

To determine

Prepare the [ADJ] entry necessary to bring Equity Investment from its current balance (using cost method) to the required balance on January 1, 2016 (using equity method).

Answer 32

e.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The consolidation journal entry [ADJ] increases the retained earnings of the parent's BOY to the balance which would have been reported if the parent used the equity method. The adjustment amount is equal to the change in the retained earnings of the subsidiary from the date of acquisition until the beginning of the consolidation year, adjusted for the cumulative AAP amortization that would have been recognized through the BOY.

Calculate the amount of adjustment:

[ADJ] is ($419,600−$242,800)−(3×$24,800)=$23,600

The [ADJ] entry necessary to bring Equity Investment from its current balance (using cost method) to the required balance on January 1, 2016 (using equity method) is as follows:

Date	Accounting Explanation	Amount ($)	Amount ($)

	Equity Investment	$23,600
	Retained Earnings (P)		$23,600
	(to adjust the parent’s Retained Earnings to its proper balance under equity method)

Table (1)

Answer 33

e.

Expert Solution

Answer 34

e.

Expert Solution

Answer 35

Expert Solution

Answer 36

f.

To determine

Prepare the consolidation entries for the year ended Dec 31, 2016.

f.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[C] Dividend Income (P)		$13,600
	Dividends (S)			$13,600
	(To eliminate all changes in the Equity Investment account, leaving only beginning balance in the account. Note: no equity income since the parent uses the cost method.)

	[E] BOY Common Stock (S)		$44,000
	BOY APIC (S)		$55,200
	BOY Retained Earnings (S)		$340,800
	Equity Investment			$440,000
	(To eliminate the portion of the investment account related to the book value of the subsidiary's stockholders' equity @ BOY)

	[A] PPE, net (S) @ BOY		$33,600
	Licenses (S) @ BOY		$80,000
	Customer List (S) @ BOY		$4,000
	Goodwill (S) @ BOY		$170,000
	Equity Investment (P) @ BOY			$287,600
	(To assign the remaining Equity Investment account (i.e., unamortized BOY AAP) to appropriate asset & liability accounts)
	[D] EOY Operating expenses		$24,800
	PPE, net (S)			$4,800
	Licenses (S)			$40,000
	Customer List (S)			$4,000
	(To record depreciation and amortization expense for the [A] assets)

	[I] No intercompany transactions

Table (1)

Answer 37

f.

To determine

Prepare the consolidation entries for the year ended Dec 31, 2016.

Answer 38

f.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[C] Dividend Income (P)		$13,600
	Dividends (S)			$13,600
	(To eliminate all changes in the Equity Investment account, leaving only beginning balance in the account. Note: no equity income since the parent uses the cost method.)

	[E] BOY Common Stock (S)		$44,000
	BOY APIC (S)		$55,200
	BOY Retained Earnings (S)		$340,800
	Equity Investment			$440,000
	(To eliminate the portion of the investment account related to the book value of the subsidiary's stockholders' equity @ BOY)

	[A] PPE, net (S) @ BOY		$33,600
	Licenses (S) @ BOY		$80,000
	Customer List (S) @ BOY		$4,000
	Goodwill (S) @ BOY		$170,000
	Equity Investment (P) @ BOY			$287,600
	(To assign the remaining Equity Investment account (i.e., unamortized BOY AAP) to appropriate asset & liability accounts)
	[D] EOY Operating expenses		$24,800
	PPE, net (S)			$4,800
	Licenses (S)			$40,000
	Customer List (S)			$4,000
	(To record depreciation and amortization expense for the [A] assets)

	[I] No intercompany transactions

Table (1)

Answer 39

f.

Expert Solution

Answer 40

f.

Expert Solution

Answer 41

Expert Solution

Answer 42

g.

To determine

Prepare the consolidation spreadsheet for the year ended December 31, 2016.

g.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

The consolidated spreadsheet for the year ended December 31, 2016 is shown below:

				Elimination entries
Income Statement	Parent	Subsidiary		Dr		Cr	Consolidated
Sales	3,024,800	660,000					3,684,800
Cost of goods sold	(2,178,000)	(396,000)					(2,574,000)
Gross Profit	846,800	264,000					1,110,800
Investment Income	13,600		[C]	13,600			0
Operating Expenses	(453,600)	(171,600)	[D]	24,800			(650,000)
Net Income	406,800	92,400					460,800

Statement of Retained Earnings
Beginning Retained Earnings	1,309,480	340,800	[E]	340,800	[ADJ]	23,600	1,333,080
Net Income	406,800	92,400					460,800
Dividends	(95,480)	(13,600)			[C]	13,600	(95,480)
Ending retained Earnings	1,620,800	419,600					1,698,400

Balance Sheet
Assets
Cash	$570,000	$170,000					$740,000
Accounts receivable	495,600	153,200					648,800
Inventory	1,173,600	196,800					1,370,400
Equity investment	704,000		[ADJ]	23,600	[E]	440,000	0
					[A]	287,600
PPE, net	1,450,800	364,000	[A]	33,600	[D]	4,800	1,843,600
Licenses			[A]	80,000	[D]	16,000	64,000
Customer List				4,000		4,000	0
Goodwill			[A]	170,000			170,000
	$4,394,000	$884,000					$4,836,800

Liabilities and Stockholder's Equity
Accounts payable	362,800	$62,800					425,600
Accrued liabilities	206,400	82,400					288,800
Long-term Liabilities	1,050,000	220,000					1,270,000
Common stock	282,000	44,000	[E]	44,000			282,000
APIC	872,000	55,200	[E]	55,200			872,000
Retained earnings	1,620,800	419,600					1,698,400

	$4,394,000	$884,000		$789,600		$789,600	4,836,800

Answer 43

g.

To determine

Prepare the consolidation spreadsheet for the year ended December 31, 2016.

Answer 44

g.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

The consolidated spreadsheet for the year ended December 31, 2016 is shown below:

				Elimination entries
Income Statement	Parent	Subsidiary		Dr		Cr	Consolidated
Sales	3,024,800	660,000					3,684,800
Cost of goods sold	(2,178,000)	(396,000)					(2,574,000)
Gross Profit	846,800	264,000					1,110,800
Investment Income	13,600		[C]	13,600			0
Operating Expenses	(453,600)	(171,600)	[D]	24,800			(650,000)
Net Income	406,800	92,400					460,800

Statement of Retained Earnings
Beginning Retained Earnings	1,309,480	340,800	[E]	340,800	[ADJ]	23,600	1,333,080
Net Income	406,800	92,400					460,800
Dividends	(95,480)	(13,600)			[C]	13,600	(95,480)
Ending retained Earnings	1,620,800	419,600					1,698,400

Balance Sheet
Assets
Cash	$570,000	$170,000					$740,000
Accounts receivable	495,600	153,200					648,800
Inventory	1,173,600	196,800					1,370,400
Equity investment	704,000		[ADJ]	23,600	[E]	440,000	0
					[A]	287,600
PPE, net	1,450,800	364,000	[A]	33,600	[D]	4,800	1,843,600
Licenses			[A]	80,000	[D]	16,000	64,000
Customer List				4,000		4,000	0
Goodwill			[A]	170,000			170,000
	$4,394,000	$884,000					$4,836,800

Liabilities and Stockholder's Equity
Accounts payable	362,800	$62,800					425,600
Accrued liabilities	206,400	82,400					288,800
Long-term Liabilities	1,050,000	220,000					1,270,000
Common stock	282,000	44,000	[E]	44,000			282,000
APIC	872,000	55,200	[E]	55,200			872,000
Retained earnings	1,620,800	419,600					1,698,400

	$4,394,000	$884,000		$789,600		$789,600	4,836,800

Answer 45

g.

Expert Solution

Answer 46

g.

Expert Solution

Answer 47

Expert Solution

Answer 48

Ch. 3 - Prob. 1Q Ch. 3 - Prob. 2Q Ch. 3 - Prob. 3Q Ch. 3 - Prob. 4Q Ch. 3 - Prob. 5Q Ch. 3 - Prob. 6Q Ch. 3 - Prob. 7Q Ch. 3 - Prob. 8Q Ch. 3 - Prob. 9Q Ch. 3 - Prob. 10Q

Explain how the parent company's pre-consolidation Investment Income for the year ended Dec 31, 2016 is assessed.

Explain how the parent company's pre-consolidation Investment Income for the year ended Dec 31, 2016 is assessed.

Explanation of Solution

Explain how the parent company's reported Equity Investment balance as of Dec 31, 2016 is assessed.

Explanation of Solution

Assess the retained earnings balance of the subsidiary as of the date of acquisition.

Explanation of Solution

Compute the Equity Investment balance at Dec 31, 2016.

Explanation of Solution

Prepare the [ADJ] entry necessary to bring Equity Investment from its current balance (using cost method) to the required balance on January 1, 2016 (using equity method).

Explanation of Solution

Prepare the consolidation entries for the year ended Dec 31, 2016.

Explanation of Solution

Prepare the consolidation spreadsheet for the year ended December 31, 2016.

Explanation of Solution

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Explain how the parent company's pre-consolidation Investment Income for the

year ended Dec 31, 2016 is assessed.

Explain how the parent company's reported Equity Investment balance as of Dec 31,

2016 is assessed.