Chapter 4, Problem 4.34P

(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.

Consolidation entries needed to prepare consolidated financial statements

Explanation of Solution

Journal entries

S. no	Particulars	Debit	Credit
1	Income from subsidiary	$ 34,000
	Dividends declared		$ 20,000
	Investment in S		$ 14,000
	(Eliminating entry for rejection of income from subsidiary)
2	Common stock- S	$ 60,000
	Retained earnings	$ 48,000
	Differential	$ 20,500
	Investment in S		$ 128,500
	(Elimination of balance of investment )
3	Building and equipment	$ 20,000
	Goodwill	$ 2,500
	Depreciation expense	$ 2,000
	Differential		$ 20,500
	Accumulated depreciation		$ 4,000
	(The assigning of differential )

1. Recording the eliminating entry for rejection of income from subsidiary
2. Recording the elimination of balance of investment
3. Recording the assigning of differential

(b)

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.

Prepare three part consolidation worksheet for 20X9

Answer to Problem 4.34P

The consolidated net income is $84,000

The consolidated retained earnings as on December 31, 20X9 is $185,000

The total consolidated assets are $671,000

The total consolidated liabilities and equities are $671,000

Explanation of Solution

Consolidated Work paper as on December 31, 20X9
Particulars	P	S	Eliminations		Consolidated
Income statement			Debit	Credit
Sales	$ 290,000	$ 00,000			$ 490,000
Less:
Cost of goods sold	$ (145,000)	$ 14,000)			$ 259,000)
Wage expense	$ (35,000)	$ 0,000)			$ 55,000)
Depreciation expense	$ (25,000)	$ 0,000)	$ 2,000		$ 37,000)
Interest income	$ (12,000)	$ ,000)			$ 16,000)
Other expenses	$ (23,000)	$ 16,000)			$ (39,000)
Impairment loss
Net income before subsidiary earning	$ 50,000	$ 36,000			$ 84,000
Income from S Company	$ 34,000		$ 34,000
Net income	$ 84,000	$ 36,000			$ 84,000
Statement of Retained Earnings
Beginning balance	$ 131,000	$ 48,000	$ 48,000		$ 131,000
Income, from above	$ 84,000	$ 36,000	$ 36,000		$ 84,000
Dividends declared	$ (30,000)	$(20,000)		$(20,000)	$ (30,000)
Ending balance	$ 185,000	$ 64,000			$ 185,000
Balance Sheet
Cash	$ 45,500	$ 32,000			$ 77,500
Accounts receivable	$ 85,000	$ 14,000			$ 99,000
Inventory	$ 97,000	$ 24,000			$ 121,000
Land	$ 50,000	$ 25,000			$ 75,000
Buildings and equipment	$ 350,000	$ 150,000	$ 20,000		$ 520,000
Less: accumulated depreciation	$ (170,000)	$(50,000)	$ 4,000		$ (224,000)
Investment in S's stock	$ 142,500			$142,500
Goodwill			$ 2,500		$ 2,500
Total assets	$ 600,000	$ 195,000			$ 671,000
Liabilities
Accounts payable	$ 51,000	$ 15,000			$ 66,000
Wages payable	$ 14,000	$ 6,000			$ 20,000
Notes payable	$ 150,000	$ 50,000			$ 200,000
Common stock:	$ 200,000	$ 60,000	$ 60,000		$ 200,000
Retained earnings from above	$ 185,000	$ 64,000	$ 64,000		$ 185,000
Total liabilities and equities	$ 600,000	$ 195,000			$ 671,000

(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.

Consolidated balance sheet, income statement and retained earnings for 20X9

Answer to Problem 4.34P

The total amount of assets and liabilities as on December 31, 20X9 is $671,000

The consolidated net income is $84,000

The consolidated Retained Earnings is $185,000

Explanation of Solution

Consolidated Balance Sheet as on December 31, 20X9

Assets	Amount	Amount
Cash		$ 77,500
Accounts receivable		$ 99,000
Inventory		$ 121,000
Buildings and equipment	$ 520,000
Less: Accumulated depreciation	$ (224,000)	$ 296,000
Goodwill		$ 2,500
Total assets		$ 671,000
Liabilities
Accounts payable		$ 66,000
Wages payable		$ 20,000
Notes payable		$ 200,000
Common stock		$ 200,000
Retained earnings		$ 185,000
Total liabilities and stockholder’s equity		$ 671,000

Consolidated Income Statement as on December 31, 20X9

Particulars	Amounts	Amounts
Sales		$ 490,000
Less:
Cost of goods sold	$ 259,000
Wage expense	$ 55,000
Depreciation expense	$ 37,000
Interest expense	$ 16,000
Other expenses	$ 39,000
Total expenses		$ (406,000)
Consolidated net income		$ 84,000

Consolidated Retained Earnings as on December 31, 20X9

Particulars	Amounts
Beginning balance	$ 131,000
Income to controlling interest	$ 84,000
Less: Dividends declared	$ 30,000
Ending balance	$ 185,000