ADV.FIN.ACCT.LL W/CONNECT+PROCTORIO PLUS
12th Edition
ISBN: 9781266380570
Author: Christensen
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 7, Problem 7.23AE
a
To determine
Modified equity method and cost method: When investments were accounted for using the modified equity method, the proportionate share of subsidiary income and dividends are recorded in the same manner as under the fully adjusted equity method. However, the share of unrealized profits from intercompany transactions is not different, instead, these unrealized gains or losses are removed from the parent’s
The
a
Expert Solution
Explanation of Solution
- Entries recorded by P related to his investment in SS in 20X4
- Elimination entries
| Particulars | Debit $ | Credit $ |
| Investment in SS Company | 45,500 | |
| Income from SS Company | 45,500 | |
| (Income from Subsidiary recognized) | ||
| Cash | 13,000 | |
| Investment in SS Company | 13,000 | |
| (Received cash on account of dividends from subsidiary) |
| Particulars | Debit $ | Credit $ |
| Common stock | 300,000 | |
| Retained earnings | 145,000 | |
| Income from SS company | 45,500 | |
| Non-controlling interest in net income of SS Company | 27,300 | |
| Dividends declared | 20,000 | |
| Investment in SS company | 321,750 | |
| Non-controlling interest in net assets of SS company | 176,050 | |
| (Elimination of beginning investment in SS) | ||
| Investment in SS company | 11,000 | |
| Land | 11,000 | |
| (Elimination of gain on purchase of land) | ||
| Investment in SS Company | 26,000 | |
| Non-controlling interest in net assets of SS | 14,000 | |
| Equipment | 40,000 | |
| (Elimination of gain on equipment) | ||
| 8,000 | ||
| Depreciation expenses | 8,000 | |
| (Recognition of depreciation expense) |
- P’s share of income in SS for 20X4 is recognized
- Dividends from SS recognized
- Elimination of beginning investment Retained earnings
- Gain on purchase of land eliminated $11,000 = ($41,000 − $30,000)
- Gain on sale of equipment eliminated recognized and extra depreciation recorded.
Elimination entries
Income from SS Company
Non-controlling interest of Net income from SS
Investment in SS Company (P’s share of book value)
| Common stock | $300,000 |
| Retained earnings January 1 20X3 | 145,000 |
| Book value at 20X3 | $445,000 |
| Add net income 20X4 | 70,000 |
| Less: dividends 20X4 | (20,000) |
| Book value at 20X4 | $495,000 |
P share of book value
Non-controlling interest in Net assets of SS Company
b
To determine
Modified equity method and cost method: When investments were accounted for using the modified equity method, the proportionate share of subsidiary income and dividends are recorded in the same manner as under the fully adjusted equity method. However, the share of unrealized profits from intercompany transactions is not different, instead, these unrealized gains or losses are removed from the parent’s retained earnings in the period after the intercompany sale, and in that case, the parent’s net income is usually not equal to the amount of consolidated net income allocated to the controlling interest.
The journal entries recorded in P’s books related to investment and all consolidation entries needed, assuming P uses the cost method.
b
Expert Solution
Explanation of Solution
- Entries recorded by P related to his investment in SS in 20X4
| Particulars | Debit $ | Credit $ |
| Cash | 13,000 | |
| Dividend income | 13,000 | |
| (Received cash on account of dividends from subsidiary) |
3. Elimination entries
| Particulars | Debit $ | Credit $ |
| Common stock | 300,000 | |
| Retained earnings | 100,000 | |
| Investment in SS company | 260,000 | |
| Non-controlling interest in net assets of SS company | 140,000 | |
| (Elimination of beginning investment in SS) | ||
| Dividend income | 13,000 | |
| Non-controlling interest in net income of SS | 7,000 | |
| Dividend declared | 20,000 | |
| (Declared dividends eliminated) | ||
| Non-controlling interest in net income of SS | 20,300 | |
| Retained earnings | 15,750 | |
| Non-controlling interest in net assets of SS Company | 36,050 | |
| (Prior undistributed income assigned to non-controlling interest) | ||
| Investment in SS company | 11,000 | |
| Land | 11,000 | |
| (Elimination of gain on purchase of land) | ||
| Investment in SS Company | 26,000 | |
| Non-controlling interest in net assets of SS | 14,000 | |
| Equipment | 40,000 | |
| (Elimination of gain on equipment) | ||
| Accumulated | 8,000 | |
| Depreciation expenses | 8,000 | |
| (Recognition of depreciation expense) |
- Dividends from SS recognized
- Beginning investment eliminated by reversal.
- Dividends declared in 20X4 eliminated by reversal.
- Prior year undistributed earning eliminated.
- Gain on purchase of land eliminated $11,000 = ($41,000 − $30,000).
- Gain on sale of equipment eliminated recognized and extra depreciation recorded.
Elimination entries
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Peanut Company acquired 90 percent of Snoopy Company's outstanding common stock for $287,100 on January 1, 20X8, when the
book value of Snoopy's net assets was equal to $319,000. Peanut uses the equity method to account for investments. Trial balance
data for Peanut and Snoopy as of December 31, 20X8, follow:
Peanut Company
Snoopy Company
Cash
Accounts Receivable
Inventory
Debit
$ 163,000
Credit
173,000
209,000
Debit
$ 87,000
67,000
93,000
Credit
Investment in Snoopy Company
Land
Buildings and Equipment.
342,000
205,000
714,000
93,000
192,000
Cost of Goods Sold
193,000
113,000
Depreciation Expense
42,000
10,000
selling & Administrative Expense
205,000
Dividends Declared
99,000
Accumulated Depreciation
$ 443,000
Accounts Payable
Bonds Payable
Common Stock
Retained Earnings
Sales
Income from Snoopy Company
Total
32,000
22,000
$ 20,000
72,000
57,000
200,000
75,000
493,000
199,000
279,300
120,000
783,000
238,000
74,700
0
$ 2,345,000
$ 2,345,000
$ 709,000
$ 709,000
Required:
a. Prepare any…
Peanut Company acquired 90 percent of Snoopy Company’s outstanding common stock for $270,000 on January 1, 20X8, when the book value of Snoopy’s net assets was equal to $300,000. Peanut uses the equity method to account for investments. Trial balance data for Peanut and Snoopy as of December 31, 20X8, follow:
Peanut Company
Snoopy Company
Debit
Credit
Debit
Credit
Cash
$ 158,000
$ 80,000
Accounts Receivable
165,000
65,000
Inventory
200,000
75,000
Investment in Snoopy Company
319,500
0
Land
200,000
100,000
Buildings and Equipment
700,000
200,000
Cost of Goods Sold
200,000
125,000
Depreciation Expense
50,000
10,000
Selling & Administrative Expense
225,000
40,000
Dividends Declared
100,000
20,000
Accumulated Depreciation
$ 450,000
$ 20,000
Accounts Payable
75,000
60,000
Bonds Payable
200,000
85,000
Common Stock
500,000
200,000
Retained Earnings
225,000
100,000
Sales
800,000
250,000…
Peanut Company acquired 90 percent of Snoopy Company’s outstanding common stock for $270,000 on January 1, 20X8, when the book value of Snoopy’s net assets was equal to $300,000. Peanut uses the equity method to account for investments. Trial balance data for Peanut and Snoopy as of December 31, 20X8, follow:
Peanut Company
Snoopy Company
Debit
Credit
Debit
Credit
Cash
$ 158,000
$ 80,000
Accounts Receivable
165,000
65,000
Inventory
200,000
75,000
Investment in Snoopy Company
319,500
0
Land
200,000
100,000
Buildings and Equipment
700,000
200,000
Cost of Goods Sold
200,000
125,000
Depreciation Expense
50,000
10,000
Selling & Administrative Expense
225,000
40,000
Dividends Declared
100,000
20,000
Accumulated Depreciation
$ 450,000
$ 20,000
Accounts Payable
75,000
60,000
Bonds Payable
200,000
85,000
Common Stock
500,000
200,000
Retained Earnings
225,000
100,000
Sales
800,000
250,000…
Chapter 7 Solutions
ADV.FIN.ACCT.LL W/CONNECT+PROCTORIO PLUS
Ch. 7 - Prob. 7.1QCh. 7 - Prob. 7.2QCh. 7 - Prob. 7.3QCh. 7 - Prob. 7.4QCh. 7 - Prob. 7.5QCh. 7 - Prob. 7.6QCh. 7 - Prob. 7.7QCh. 7 - Prob. 7.8QCh. 7 - Prob. 7.9QCh. 7 - Prob. 7.10Q
Ch. 7 - Prob. 7.11QCh. 7 - Prob. 7.12QCh. 7 - Prob. 7.13QCh. 7 - Prob. 7.14QCh. 7 - Prob. 7.15QCh. 7 - Prob. 7.16QCh. 7 - Prob. 7.17QCh. 7 - Prob. 7.18AQCh. 7 - Prob. 7.1CCh. 7 - Prob. 7.2CCh. 7 - Prob. 7.3CCh. 7 - Prob. 7.4CCh. 7 - Prob. 7.5CCh. 7 - Prob. 7.1.1ECh. 7 - Prob. 7.1.2ECh. 7 - Prob. 7.1.3ECh. 7 - Prob. 7.1.4ECh. 7 - Prob. 7.1.5ECh. 7 - Prob. 7.2.1ECh. 7 - Prob. 7.2.2ECh. 7 - Prob. 7.2.3ECh. 7 - Prob. 7.2.4ECh. 7 - Prob. 7.2.5ECh. 7 - Prob. 7.2.6ECh. 7 - Prob. 7.3ECh. 7 - Prob. 7.4ECh. 7 - Prob. 7.5ECh. 7 - Prob. 7.6ECh. 7 - Prob. 7.7ECh. 7 - Transfer of Depreciable Asset at Year-End Pitcher...Ch. 7 - Prob. 7.9ECh. 7 - Sale of Equipment to Subsidiary in Current Period...Ch. 7 - Prob. 7.11ECh. 7 - Prob. 7.12ECh. 7 - Prob. 7.13ECh. 7 - Prob. 7.14ECh. 7 - Prob. 7.15ECh. 7 - Prob. 7.16ECh. 7 - Prob. 7.17ECh. 7 - Prob. 7.18ECh. 7 - Prob. 7.19ECh. 7 - Prob. 7.20ECh. 7 - Prob. 7.21ECh. 7 - Prob. 7.22ECh. 7 - Prob. 7.23AECh. 7 - Prob. 7.24PCh. 7 - Prob. 7.25PCh. 7 - Prob. 7.26PCh. 7 - Prob. 7.27PCh. 7 - Prob. 7.28.1PCh. 7 - Prob. 7.28.2PCh. 7 - Prob. 7.28.3PCh. 7 - Prob. 7.28.4PCh. 7 - Prob. 7.29PCh. 7 - Prob. 7.30PCh. 7 - Prob. 7.31PCh. 7 - Prob. 7.32PCh. 7 - Prob. 7.33PCh. 7 - Prob. 7.34PCh. 7 - Prob. 7.35PCh. 7 - Prob. 7.37PCh. 7 - Prob. 7.38PCh. 7 - Prob. 7.41AP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Entries for equity investments: less than 20% ownership On February 22, Triangle Corporation acquired 6,200 shares of the 215,000 outstanding common stock of Jupiter Co. at $39.80 plus commission charges of $1,240. On June 1, a cash dividend of $0.50 per share was received. On November 12, 2,000 shares were sold at $48 less commission charges of $240. At the end of the accounting period on December 31, the fair value of the remaining 4,200 shares of Jupiter Company’s stock was $40.50 per share. In your computations, round per share amounts to two decimal places. When required, round final answers to the nearest dollar. Question Content Areaarrow_forwardEntries for equity investments: less than 20% ownership On February 22, Triangle Corporation acquired 2,900 shares of the 100,000 outstanding common stock of Jupiter Co. at $23.80 plus commission charges of $580. On June 1, a cash dividend of $0.60 per share was received. On November 12, 1,000 shares were sold at $29 less commission charges of $120. At the end of the accounting period on December 31, the fair value of the remaining 1,900 shares of Jupiter Company’s stock was $24.50 per share. In your computations, round per share amounts to two decimal places. When required, round final answers to the nearest dollar. Question Content Area a. Using the cost method, journalize the entry for the purchase of stock. If an amount box does not require an entry, leave it blank. Feb. 22 Investments-Jupiter Co. Stock Investments-Jupiter Co. Stock Cash Cash Feedback Area Feedback Question Content Area b. Using the cost method, journalize the…arrow_forwardParesarrow_forward
- Investment question On January 1, Western Corporation purchased a 25% equity investment in Eastern Corporation for $477,000. On December 31, Eastern paid a $12,400 dividend and reported a net profit of $86,000. The fair value of the shares on December 31 was $407,500. Determine the amount that Western reported as the investment in Eastern Corporation at December 31. (Do not use $ signs or commas in your answer. Do not round intermediary calculations. Only round final answers to 2 decimal places ex: 5.25)arrow_forwardAccounting for equity investments On January 6, 20Y8, Bulldog Co. purchased 34% of the outstanding common stock of Gator Co. for $225,000. Gator Co. paid total dividends of $20,000 to all shareholders on June 30, 20Y8. Gator had a net loss of $55,000 for 20Y8. a. Journalize Bulldog's purchase of the stock, receipt of the dividends, and the adjusting entry for the equity loss in Gator Co. stock. If an amount box does not require an entry, leave it blank. 20Y8 Jan. 6 20Y8 June 30 20Y8 Dec. 31 b. Compute the balance of Investment in Gator Co. Stock on December 31, 20Y8.arrow_forwardSubject- accountingarrow_forward
- Please help mearrow_forwardEquity investments: 20%-50% ownership On January 2, 20Y4, Whitworth Company acquired 30% of the outstanding stock of Aloof Company for $310,000. For the year ended December 31, 20Y4, Aloof Company earned income of $81,000 and paid dividends of $25,000. On January 31 20Y5, Whitworth Company sold all of its investment in Aloof Company stock for $324,300. Journalize the entries for Whitworth Company for the purchase of the stock, the share of Aloof income, the dividends received from Aloof Company, and the sale of the Aloof Company stock. If an amount box does not require an entry, leave it blank. Jan. 2, 20Y4 - Purchase Dec. 31, 20Y4 - Income Dec. 31, 20Y4 - Dividends Jan. 31, 20Y5 - Salearrow_forwardPeace Company issued common shares with a par value of $50,000 and a market value of $165,000 in exchange for 30 percent ownership of Symbol Corporation on January 1, 20X2. Symbol reported the following balances on that date: SYMBOL CORPORATION Balance Sheet January 1, 20X2 Book Value Fair Value Assets Cash $ 40,000 $ 40,000 Accounts Receivable 80,000 80,000 Inventory (FIFO basis) 120,000 150,000 Land 50,000 65,000 Buildings & Equipment 500,000 320,000 Less: Accumulated Depreciation (240,000) Patent 25,000 Total Assets $ 550,000 $ 680,000 Liabilities & Equities Accounts Payable $ 30,000 $ 30,000 Bonds Payable 100,000 100,000 Common Stock 150,000 Additional Paid-In Capital 20,000 Retained Earnings 250,000 Total Liabilities & Equities $ 550,000 The estimated economic life of the patents held by Symbol is 10 years. The buildings and equipment are expected to last 12 more years on average. Symbol paid dividends…arrow_forward
- a. On January 1, Yourkie Company acquired 30% of the outstanding stock of Harris Company for $300,000. DATE Debit Credit X/X b. For the year ended December 31, Harris Company earned income of $50,000. DATE Debit Credit X/X c. For the year ended December 31, Harris Company paid dividends of $8,000. DATE Debit Credit X/X d. On January 8th of the next year, Yorkshire Company sold the Harris Company stock for $301,000. DATE Debit Credit X/Xarrow_forwarda. On January 1, Yourkie Company acquired 30% of the outstanding stock of Harris Company for $300,000. DATE Debit Credit X/X b. For the year ended December 31, Harris Company earned income of $50,000. DATE Debit Credit X/X c. For the year ended December 31, Harris Company paid dividends of $8,000. DATE Debit Credit X/X d. On January 8th of the next year, Yorkshire Company sold the Harris Company stock for $301,000. DATE Debit Credit X/X i have a-c PLEASE ONLY HELP ON PART Darrow_forwardPaper Company acquired 80 percent of Scissor Company’s outstanding common stock for $296,000 on January 1, 20X8, when the book value of Scissor’s net assets was equal to $370,000. Paper uses the equity method to account for investments. Trial balance data for Paper and Scissor as of December 31, 20X8, are as follows: Paper Company Scissor Company Debit Credit Debit Credit Cash $ 191,000 $ 46,000 Accounts Receivable 140,000 60,000 Inventory 190,000 120,000 Investment in Scissor Company 350,400 0 Land 250,000 125,000 Buildings and Equipment 875,000 250,000 Cost of Goods Sold 250,000 155,000 Depreciation Expense 65,000 12,000 Selling & Administrative Expense 280,000 50,000 Dividends Declared 80,000 25,000 Accumulated Depreciation $ 565,000 $ 36,000 Accounts Payable 77,000 27,000 Bonds Payable 250,000 100,000 Common Stock 625,000 250,000 Retained Earnings 280,000 120,000 Sales 800,000…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
The ACCOUNTING EQUATION For BEGINNERS; Author: Accounting Stuff;https://www.youtube.com/watch?v=56xscQ4viWE;License: Standard Youtube License