Chapter 5, Problem 31P

a.

To determine

Show how Company M determined the $411,000 Investment in Company S account balance.

Explanation of Solution

Particulars	Amount	Amount
Consideration transferred on 01/01/2017		$          372,000
Reported income of Company S	$            60,000
Patents amortization	$             (7,000)
Amortization of Customer list	$             (3,000)
Adjusted income of Company S	$            50,000
Ownership percent of Company P	60%
Share of Company M in Income of Company S		$            30,000
Deferred profit of sale occurred in 2017		$          (10,000)
Balance as on 12/31/2017		$          392,000
Reported income of Company S	$            60,000
Patents amortization	$             (7,000)
Amortization of Customer list	$             (3,000)
Adjusted income of Company S in 2018	$            50,000
Ownership percent of Company P	60%
Share of Company P in Income of Company S	$            30,000
Profit of 2017 recognized	$            10,000
Deferred profit of 2018	$           (12,000)
Equity in earnings of Company S in 2017		$            28,000
Share of Company M in dividends of Company S in 2017		$            (9,000)
Balance as on 12/31/2017		$          411,000

Table: (1)

b.

To determine

Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2018.

Explanation of Solution

The consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2018 is as follows:

Company M and Company S
Consolidation Worksheet
Year ending December 31, 2018
Income statement	Company M	Company S	Debit	Credit	Non-controlling interest	Consolidated Balances
Revenues	$         (700,000)	$        (335,000)	$        160,000			$      (875,000)
Cost of goods sold	$          460,000	$          205,000	$          12,000	$         10,000		$        507,000
				$       160,000
Operating expense	$          188,000	$            70,000	$          10,000			$        268,000
Equity in income of Company S	$           (28,000)		$          28,000			$                   -
Net income	$           (80,000)	$          (60,000)
Consolidated net income						$      (100,000)
Share of non-controlling interest in net income					$    (20,000)	$          20,000
Share of controlling interest in net income						$        (80,000)
Balance Sheet
Cash	$          248,000	$          148,000				$        396,000
Inventory	$          233,000	$          129,000		$         12,000		$        350,000
Investment in Company S	$          411,000
Building	$          308,000	$          202,000				$        510,000
Equipment	$          220,000	$            86,000				$        306,000
Patents		$            20,000	$          70,000	$         14,000		$          76,000
Customer list			$          45,000	$           6,000		$          39,000
Goodwill			$        185,000			$        185,000
Total assets	$       1,420,000	$          585,000				$     1,862,000
Liabilities	$         (390,000)	$        (160,000)				$      (550,000)
Common stock	$         (300,000)	$        (100,000)	$        100,000			$      (300,000)
Retained earnings	$         (730,000)	$        (325,000)				$      (730,000)
Non-controlling interest in Company S				$       268,000
				$         14,000
					$    282,000	$      (282,000)
Total liabilities and equity	$      (1,420,000)	$        (585,000)				$     1,862,000

Table: (2)

Working note:

Statement of retained earnings	Company M	Company S	Debit	Credit	Non-controlling interest	Consolidated Balances
Retained earnings on 01/01	$         (695,000)	$        (280,000)	$        280,000			$      (695,000)
Net Income	$           (80,000)	$          (60,000)				$        (80,000)
Dividends declared	$            45,000	$            15,000		$           9,000	$        6,000	$          45,000
Retained earnings on 31/12	$         (730,000)	$        (325,000)				$      (730,000)

Table: (3)