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 4.29P

(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.

Journal entries needed for investment in S during 20X4.

(a)

Expert Solution
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Explanation of Solution

Journal entries (equity method)

    S. No.ParticularsAmount (in $)Amount (in$)
    1Investment in S32,000
    Income from S32,000
    (Being acquisition entry passed)
    2Cash12,000
    Investment in S 12,000
    (Being dividend entry passed)
    3Income from S4,000
    Investment in S4,000
    (Being amortization of excess acquired price)
  1. Recording the P’s 100% share acquisition in S
  2. Recording the dividend received
  3. Recording amortization of excess acquisition price

(b)

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.

Journal entries needed to prepare consolidated financial statements for 20X4.

(b)

Expert Solution
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Explanation of Solution

Journal Entry

    S.noParticularsAmount $Amount $
    1Common stock-S 100,000  
    Retained earnings 120,000  
    Income from S 32,000  
    Dividends declared  12,000
    Investment in S  240,000
    (Being entry for investment and dividend declared recognized)  
    2Buildings an equipment 40,000  
    Accumulated depreciation  8,000
    Income from S  32,000
    (Being income from S recognized to building and equipment)  
    3Depreciation expense 4,000  
    Accumulated depreciation 100,000  
    (Being excess amount charged as depreciation on yearly basis for 10 years) 120,000  
    4Accounts payable 32,000  
    Accounts receivable 12,000
    (Being amount due by S to P recognized)  240,000
  1. Recording the eliminating entry for investment in S and the beginning investment
  2. Assigning income from S to building and equipment
  3. Recording amortization of differential
  4. Recording the elimination of intercorporate receivables and payables

(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.

Three part consolidation worksheet for 20X4

(c)

Expert Solution
Check Mark

Answer to Problem 4.29P

The consolidated net income is $76,000

The consolidated retained earnings as on December 31, 20X4 is $338,000

The total consolidated assets are $926,500

The total consolidated liabilities and equities are $926,500

Explanation of Solution

Consolidated Worksheet as on December 31, 20X4

    ParticularsP $S $EliminationsConsolidated $
    Income statement Debit (in $)Credit(in $)
    Service revenue610,000240,000850,000
    Less:
    Cost of services(470,000)(130,000)(600,000)
    Depreciation expense(35,000)(18,000)4,000(57,000)
    Other expenses(57,000)(60,000)(117,000)
    Income from S28,00028,0000
    Net income$76,000$32,000$32,000$76,000
    Statement of Retained Earnings
    Retained earnings Jan 1292,000120,000120,000292,000
    Income, from above76,00032,00032,00076,000
    Dividends declared(30,000)(12,000)12,000(30,000)
    Retained earnings as on Dec 1 carried forward$338,000$140,000$152,000$12,000$338,000
    Balance Sheet
    Cash 74,00042,000116,000
    Accounts receivable130,00053,0002,500180,500
    Investment in S268,000268,000
    Land60,00050,000110,000
    Buildings and equipment500,000350,00040,000890,000
    Less: accumulated depreciation(265,000)(93,000)12,000(370,000)
    Income from S32,00032,0000
    Total assets$767,000$402,000$926,500
    Liabilities
    Accounts payable71,00017,0002,50085,500
    Taxes payable58,00060,000118,000
    Notes payable100,00085,000185,000
    Common stock:200,000100,000100,000200,000
    Retained earnings from above338,000140,000152,00012,000338,000
    Total liabilities and equities$767,000$402,000$926,500

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Advanced Financial Accounting

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