Chapter 4, Problem 4.19E

a.

To determine

Introduction: Equity method is the one of the methods of treating investment in companies. This method is used when the investor has a significant influence over the investee. Investor owns between 20% to 50% of investee’s shares or voting rights.

To prepare: Journal entries recorded by P Co. for its investment in S corporation by using equity method.

b.

To determine

Introduction: Consolidation accounting is a process where in the financial statement of several subsidiary companies are combined and showed in the financial statements of parent company. When the parent company has a share of 50% or more in a subsidiary company then this method is adopted.

To prepare: Consolidated entries needed to prepare consolidated financial statement.