Chapter 4, Problem 4.29P

(a)

To determine

Introduction: Journal entries is a systematic method of recording transactions as and when they occur. It is a summary of transactions divided into the debit and credit items that are recorded chronologically. It is an act of keeping and recording all the transactions occurring in the business.

Journal entries needed for investment in S during 20X4.

Explanation of Solution

Journal entries (equity method)

S. No.	Particulars	Amount (in $)	Amount (in$)
1	Investment in S	32,000
	Income from S		32,000
	(Being acquisition entry passed)
2	Cash	12,000
	Investment in S		12,000
	(Being dividend entry passed)
3	Income from S	4,000
	Investment in S		4,000
	(Being amortization of excess acquired price)

1. Recording the P’s 100% share acquisition in S
2. Recording the dividend received
3. Recording amortization of excess acquisition price

(b)

To determine

Introduction: Journal entries is a systematic method of recording transactions as and when they occur. It is a summary of transactions divided into the debit and credit items that are recorded chronologically. It is an act of keeping and recording all the transactions occurring in the business.

Journal entries needed to prepare consolidated financial statements for 20X4.

Explanation of Solution

Journal Entry

S.no	Particulars	Amount $	Amount $
1	Common stock-S	100,000
	Retained earnings	120,000
	Income from S	32,000
	Dividends declared		12,000
	Investment in S		240,000
	(Being entry for investment and dividend declared recognized)
2	Buildings an equipment	40,000
	Accumulated depreciation		8,000
	Income from S		32,000
	(Being income from S recognized to building and equipment)
3	Depreciation expense	4,000
	Accumulated depreciation	100,000
	(Being excess amount charged as depreciation on yearly basis for 10 years)	120,000
4	Accounts payable	32,000
	Accounts receivable		12,000
	(Being amount due by S to P recognized)		240,000

1. Recording the eliminating entry for investment in S and the beginning investment
2. Assigning income from S to building and equipment
3. Recording amortization of differential
4. Recording the elimination of intercorporate receivables and payables

(c)

To determine

Introduction: A consolidated worksheet is used to prepare the consolidated financial statements of the parent company and its subsidiary. It reflects the individual values of the parent and the subsidiary and then one consolidated figure for both the entities.

Three part consolidation worksheet for 20X4

Answer to Problem 4.29P

The consolidated net income is $76,000

The consolidated retained earnings as on December 31, 20X4 is $338,000

The total consolidated assets are $926,500

The total consolidated liabilities and equities are $926,500

Explanation of Solution

Consolidated Worksheet as on December 31, 20X4

Particulars	P $	S $	Eliminations		Consolidated $
Income statement			Debit (in $)	Credit(in $)
Service revenue	610,000	240,000			850,000
Less:
Cost of services	(470,000)	(130,000)			(600,000)
Depreciation expense	(35,000)	(18,000)	4,000		(57,000)
Other expenses	(57,000)	(60,000)			(117,000)
Income from S	28,000		28,000		0
Net income	$76,000	$32,000	$32,000		$76,000
Statement of Retained Earnings
Retained earnings Jan 1	292,000	120,000	120,000		292,000
Income, from above	76,000	32,000	32,000		76,000
Dividends declared	(30,000)	(12,000)		12,000	(30,000)
Retained earnings as on Dec 1 carried forward	$338,000	$140,000	$152,000	$12,000	$338,000
Balance Sheet
Cash	74,000	42,000			116,000
Accounts receivable	130,000	53,000		2,500	180,500
Investment in S	268,000			268,000
Land	60,000	50,000			110,000
Buildings and equipment	500,000	350,000	40,000		890,000
Less: accumulated depreciation	(265,000)	(93,000)		12,000	(370,000)
Income from S			32,000	32,000	0
Total assets	$767,000	$402,000			$926,500
Liabilities
Accounts payable	71,000	17,000	2,500		85,500
Taxes payable	58,000	60,000			118,000
Notes payable	100,000	85,000			185,000
Common stock:	200,000	100,000	100,000		200,000
Retained earnings from above	338,000	140,000	152,000	12,000	338,000
Total liabilities and equities	$767,000	$402,000			$926,500