Advanced Financial Accounting
Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
Question
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Chapter 4, Problem 4.35P

(a)

To determine

Introduction: 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, the eliminated values and finally the one consolidated figures 

Journal entries of P related to its investment in S.

(a)

Expert Solution
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Explanation of Solution

Journal entries

    ParticularsDebit Credit
    Investment in S $ 30,000
    Income from S $ 30,000
    (To record P' share of S' income.)
    Cash $ 10,000
    Investment in S $ 10,000
    (To record dividend from S'.)
    Income from S $ 5,000
    Investment in S $ 5,000
    (Torecord the amortization of excess value acquired.)

Working Note:

    Calculation of Net Income of S' for the year 20X5
    Sales $ 100,000
    Less:
    Cost of goods sold $ 50,000
    Depreciation expenses $ 15,000
    Inventory losses $ 5,000 $ 70,000
    Net Income $ 30,000

(b)

To determine

Introduction: 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, the eliminated values and finally the one consolidated figures 

Consolidation entries to prepare consolidation financial statements.

(b)

Expert Solution
Check Mark

Answer to Problem 4.35P

Consolidation Entries

    S. No.ParticularsDebit Credit
    1Income from S $ 25,000
    Dividend declared $ 10,000
    Investment in S $ 15,000
    (To eliminate the income from subsidiary.)
    2Common stock- S $ 100,000
    Retained earning $ 90,000
    Investment in S $ 190,000
    (To eliminate the investment.)
    Building and equipment $ 50,000
    Investment in S $ 30,000
    Accumulated depreciation $ 20,000
    (To record the excess value of building and equipment and accumulated depreciation.)
    3Depreciation expense $ 5,000
    Accumulated depreciation $ 5,000
    (To record amortization of excess value.)
    4Accounts payable $ 10,000
    Cash and Receivable $ 10,000
    (To eliminate the inter-corporate receivable and payable.)

Explanation of Solution

    Calculation of Goodwill (if any) in the acquisition of S' as on January 1, 20X5
    Consideration paid by P $ 200,000
    Less:
    Common Stock $ 100,000
    Retained earnings $ 50,000 $ 150,000
    Excess of Fair value over Book value $ 50,000
    Allocation of Excess value to specified accounts
    Building and equipment $ 50,000
    So, all the excess value allocated to Building and equipment, hence no Goodwill
    Calculation of Depreciation of Excess value allotted to Building and equipment
    Building and equipment $ 50,000
    Life 10 Years
    Depreciation per year $ 5,000
    Total Accumulated Depreciation 4 year ($5,000*4) $ 20,000

(c)

To determine

Introduction: 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, the eliminated values and finally the one consolidated figures 

To prepare: Three part consolidation work paper for 20X5.

(c)

Expert Solution
Check Mark

Explanation of Solution

    Consolidated Work paper as on December 31, 20X5
    ParticularsPSEliminationsConsolidated
    Income statement DebitCredit
    Sales $ 200,000 $ 100,000 $ 300,000
    Less:
    Cost of goods sold $(120,000) $ (50,000) $(170,000)
    Depreciation expense $ (25,000) $ (15,000) $ 5,000 $ (45,000)
    Inventory losses $ (15,000) $ (5,000) $ (20,000)
    Income from S' $ 25,000 $ 25,000
    Net income$ 65,000 $ 30,000 $ 65,000
    Statement of Retained Earnings
    Beginning balance $ 318,000 $ 90,000 $ 90,000 $ 318,000
    Income, from above $ 65,000 $ 65,000
    Dividends declared $ (30,000) $ (10,000) $(10,000) $ (30,000)
    Ending balance$ 353,000 $ 80,000 $ 90,000 $(10,000)$ 353,000
    Balance Sheet
    Assets
    Cash and Receivables $ 43,000 $ 65,000 $ 10,000 $ 98,000
    Inventory $ 260,000 $ 90,000 $ 350,000
    Land $ 80,000 $ 80,000 $ 160,000
    Buildings and equipment $ 500,000 $ 150,000 $ 50,000 $ 700,000
    Less: Accumulated Depreciation $(205,000) $(105,000) $ 20,000
    Less: Depreciation for the year $ 5,000 $ (335,000)
    Investment in S's stock $ 235,000 $235,000
    Goodwill -
    Total assets$ 913,000 $ 280,000 $ 973,000
    Liabilities
    Accounts payable $ 60,000 $ 20,000 $ 10,000 $ 70,000
    Notes payable $ 200,000 $ 50,000 $ 250,000
    Common stock: $ 300,000 $ 100,000 $100,000 $ 300,000
    Retained earnings from above $ 353,000 $ 110,000 $110,000 $ 353,000
    Total liabilities and equities$ 913,000 $ 280,000 $ 973,000

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Students have asked these similar questions
Pizza Corporation acquired 80 percent ownership of Slice Products Company on January 1, 20X1, for $148,000. On that date, the fair value of the noncontrolling interest was $37,000, and Slice reported retained earnings of $45,000 and had $93,000 of common stock outstanding. Pizza has used the equity method in accounting for its investment in Slice. Trial balance data for the two companies on December 31, 20X5, are as follows:     PizzaCorporation   SliceProducts Company   Item Debit   Credit   Debit   Credit Cash & Receivables $ 86,000         $ 80,000         Inventory   270,000           94,000         Land   83,000           83,000         Buildings & Equipment   501,000           154,000         Investment in Slice Products Company   176,400                     Cost of Goods Sold   115,000           45,000         Depreciation Expense   25,000           15,000         Inventory Losses   15,000           6,000         Dividends Declared   45,000…
Pizza Corporation acquired 80 percent ownership of Slice Products Company on January 1, 20X1, for $148,000. On that date, the fair value of the noncontrolling interest was $37,000, and Slice reported retained earnings of $45,000 and had $93,000 of common stock outstanding. Pizza has used the equity method in accounting for its investment in Slice. Trial balance data for the two companies on December 31, 20X5, are as follows:     PizzaCorporation   SliceProducts Company   Item Debit   Credit   Debit   Credit Cash & Receivables $ 86,000         $ 80,000         Inventory   270,000           94,000         Land   83,000           83,000         Buildings & Equipment   501,000           154,000         Investment in Slice Products Company   176,400                     Cost of Goods Sold   115,000           45,000         Depreciation Expense   25,000           15,000         Inventory Losses   15,000           6,000         Dividends Declared   45,000…
Pizza Corporation acquired 80 percent ownership of Slice Products Company on January 1, 20X1, for $148,000. On that date, the fair value of the noncontrolling interest was $37,000, and Slice reported retained earnings of $45,000 and had $93,000 of common stock outstanding. Pizza has used the equity method in accounting for its investment in Slice. Trial balance data for the two companies on December 31, 20X5, are as follows:     PizzaCorporation   SliceProducts Company   Item Debit   Credit   Debit   Credit Cash & Receivables $ 86,000         $ 80,000         Inventory   270,000           94,000         Land   83,000           83,000         Buildings & Equipment   501,000           154,000         Investment in Slice Products Company   176,400                     Cost of Goods Sold   115,000           45,000         Depreciation Expense   25,000           15,000         Inventory Losses   15,000           6,000         Dividends Declared   45,000…

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Advanced Financial Accounting

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