Loose Leaf for Fundamentals of Advanced Accounting
Loose Leaf for Fundamentals of Advanced Accounting
7th Edition
ISBN: 9781260151879
Author: Hoyle, Joe Ben; Schaefer, Thomas; Doupnik, Timothy
Publisher: McGraw-Hill Education
Question
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Chapter 5, Problem 36P

a.

To determine

Show how Company P computed its $39,000 equity in Company S’s earnings balance.

a.

Expert Solution
Check Mark

Explanation of Solution

Computation of equity in Company S’s earnings balance:

ParticularsAmount
Net income of the subsidiary $(90,000)
Amortization of patented technology $  29,000
Unrealized gross profit of 2017 realized $(13,000)
Unrealized gross profit of 2018 deferred $  19,000
Gain on sale of land deferred $  16,000
Equity in earnings $(39,000)

Table: (1)

Working note:

Computation of closing stock in 2017:

ParticularsAmount
Sales price in 2017 $  125,000
Resold %74%
Unsold %26.00%
Closing stock in 2017 $    32,500

Table: (2)

Computation of unrealized profit on closing stock:

 YearSales (A)Cost of goods sold (B)Profit
C= (A) (B)
Closing stock
(D)
Profit on closing stock
(E)={(C ×D)÷A}
2017 $  125,000 $   75,000 $      50,000 $ 32,500 $                13,000
2018 $  140,000 $   70,000 $      70,000 $ 38,000 $                19,000

Table: (3)

b.

To determine

Prepare a 2018 consolidated worksheet for Company P and Company S.

b.

Expert Solution
Check Mark

Explanation of Solution

Consolidated worksheet for Company P and Company S in 2018:

Company P and Company S
 Consolidation Worksheet
 Year ending December 31, 2018
    Consolidation entries 
 Accounts Company P Company S Debit Credit Consolidated totals
 Revenues $   (710,000) $   (360,000) $    140,000  $    (930,000)
 Cost of goods sold $     305,000 $     189,000 $      19,000 $   140,000 
     $     13,000 $      360,000
 Other operating expenses $     167,000 $       81,000 $      29,000  $      277,000
 Gain on sale of land $     (16,000) $                - $      16,000  $                 -
 Equity in Company S's earnings $     (39,000) $                - $      39,000  $                 -
 Net income $   (293,000) $     (90,000)   $    (293,000)
      
 Balance Sheet     
 Cash and receivables $     102,000 $     154,000  $     62,000 $      194,000
 Inventory $     311,000 $     110,000  $     19,000 $      402,000
 Investment in Company S $     691,000 $                - $      25,000 $   429,000 
     $   248,000 
     $     39,000 
 Trademarks $                - $       58,000 $      45,000  $      103,000
 Land, buildings, and equip. (net) $     638,000 $     280,000  $     16,000 $      902,000
 Patented technology $                - $     125,000 $    203,000 $     29,000 $      299,000
 Total assets $  1,742,000 $     727,000   $   1,900,000
      
 Liabilities $   (462,000) $   (220,000) $      62,000  $    (620,000)
 Common stock $   (400,000) $   (100,000)   $    (400,000)
 Additional paid-in capital $   (300,000) $     (50,000)   $    (300,000)
 Retained earnings 12/31/18 $   (580,000) $   (357,000)   $    (580,000)
 Total liabilities and equity $(1,742,000) $   (727,000)   $ (1,900,000)

Table: (4)

Working note:

Statement of retained earnings Company P Company S Debit Credit Consolidated totals
 Retained earnings 1/1/18 $   (367,000) $   (292,000) $      13,000  $    (367,000)
    $    279,000  
 Net income $   (293,000) $     (90,000)   $    (293,000)
 Dividends declared $       80,000 $       25,000  $     25,000 $        80,000
 Retained earnings 12/31/18 $   (580,000) $   (357,000)   $    (580,000)

Table: (5)

Computation of unamortized amount of patented technology:

Value of Unamortized patented technology as on 31/12/2017
Original value as on 01/01/2017 $     232,000
Less: Amortization during the year $       29,000
Unamortized value as on 31/12/2017 $     203,000

Table: (6)

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