Equity method: The equity method basically keeps the record of the parent’s ownership interest that is multiplied by the reported net income of the subsidiary. This income will be added to parent’s investment account and the deduction in this method will be of the parent’s ownership interest multiplied by the reported losses of the subsidiary and parent’s ownership interest multiplied by the declared dividends of the subsidiary. All together equals the equity-adjusted balance.
Cost method: The cost method basically retains the original cost of acquisition balance in the subsidiary account. As the income is earned by the subsidiary, no adjustments would be made.
To calculate: The preparation of statement of determination and distribution of excess schedule for the year end December
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Advanced Accounting
- Venus Company purchases 8,000 shares of Sundown Company for $64 per share. Just prior to the purchase, Sundown Company has the following balance sheet: (see attachment)Venus Company believes that the inventory has a fair value of $400,000 and that the property plant, and equipment is worth $500,000. 1. Prepare the value analysis schedule and the determination and distribution of excess schedule. 2. Prepare the elimination entries that would be made on a consolidated worksheet prepared on the date of acquisition.arrow_forwardDetner International purchases 80% of the outstanding stock of Hardy Company for $1,600,000 on January 1, 2015. At the purchase date, the inventory, equipment, and patents of Hardy Company have fair values of $10,000, $50,000, and $100,000, respectively, in excess of their book values. The other assets and liabilities of Hardy Company have book values equal to their fair values. The inventory is sold during the month following the purchase. The two companies agree that the equipment has a remaining life of eight years and the patents 10 years. Onthe purchase date, the owners’ equity of Hardy Company is as follows:Common stock ($10 stated value) . . . . . . . . . . . . . . . . $1,000,000Additional paid-in capital in excess of par . . . . . . . . . 300,000Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,700,000During 2015 and 2016, Hardy Company has income and pays dividends as…arrow_forwardOn March 31, Pyramid Co. acquired 40% of the shares of Casting Co. Pyramid paid $3,000,000 for the investment, and that amount is equal to 40% of the book value of identifiable net assets on Casting's balance sheet. Casting recognized net loss of $1,000,000 for the year. After closing entries are made for the year, Pyramid’s "Investment in Casting Company" account would have a balance of: Group of answer choices $3,160,000 $3,200,000 $3,000,000 $3,120,000 $2,700,000arrow_forward
- Cardinal Company acquires an 80% interest in Huron Company common stock for $420,000 cash on January 1, 2015. At that time, Huron Company has the following balance sheet: (attached)Prepare a determination and distribution of excess schedule for the investment in Huron Company (a value analysis is not needed). Prepare journal entries that Cardinal Company would make on its books to record income earned and/or dividends received on its investment in Huron Company during 2015 and 2016 under the following methods: simple equity, sophisticated equity, and cost.arrow_forwardParker Company acquires an 80% interest in Sargent Company for $300,000 on January 1, 2015, when Sargent Company has the following balance sheet: (See image) The excess of the price paid over book value is attributable to the fixed assets, which have afair value of $250,000, and to goodwill. The fixed assets have a 10-year remaining life. Parkeruses the sophisticated equity method to record the investment in Sargent Company. The trial balances of Parker and Sargent companies for December 31, 2016, are presented as follows: (see image) Parker Company continues to use the sophisticated equity method. Required:1. Prepare all the eliminations and adjustments that would be made on the 2016 consolidatedworksheet.arrow_forwardOn March 1, 2015, Penson Enterprises purchases an 80% interest in Express Corporation for $320,000 cash. Express Corporation has the following balance sheet on February 28, 2015: (attached)Penson Enterprises receives an independent appraisal on the fair values of Express Corporation’s assets and liabilities. The controller has reviewed the following figures and accepts them as reasonable:Accounts receivable . . . . . . . . . . $ 60,000Inventory . . . . . . . . . . . . . . . . . . . 100,000Land. . . . . . . . . . . . . . . . . . . . . . . 50,000Buildings . . . . . . . . . . . . . . . . . . . 200,000Equipment . . . . . . . . . . . . . . . . . . 162,000Current liabilities . . . . . . . . . . . . . 50,000Bonds payable . . . . . . . . . . . . . . 95,0001. Record the investment in Express Corporation.2. Prepare the value analysis schedule and the determination and distribution of excess schedule.3. Prepare the elimination entries that would be made on a consolidated worksheet prepared on the…arrow_forward
- Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2017. As of that date, Abernethy has the following trial balance: Debit Credit Accounts payable $ 55,100 Accounts receivable $ 44,700 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 163,000 Cash and short-term investments 83,750 Common stock 250,000 Equipment (net) (5-year remaining life) 207,500 Inventory 122,000 Land 85,500 Long-term liabilities (mature 12/31/20) 162,500 Retained earnings, 1/1/17 202,150 Supplies 13,300 Totals $ 719,750 $ 719,750 During 2017, Abernethy reported net income of $105,000 while declaring and paying dividends of $13,000. During 2018, Abernethy reported net income of $136,750 while declaring and paying dividends of $36,000. Assume that Chapman Company acquired Abernethy’s common stock for $605,600 in cash. As of…arrow_forwardOn April 1, 2024, Sunland Company purchased 44,800 common shares in Ecotown Ltd. for $13 per share. Management has designated the investment as FVTOCI. On December 5, Ecotown paid dividends of $0.10 per share and its shares were trading at $15 per share on December 31. Prepare the required entries to record the purchase, dividends, and year-end adjusting journal entry (if any) for this investment. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Record journal entries in the order presented in the problem. List all debit entries before credit entries.) Date Account Titles く Debit Creditarrow_forwardChapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2017. As of that date, Abernethy has the following trial balance: Debit Credit Accounts payable $ 52,400 Accounts receivable $ 48,600 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 179,000 Cash and short-term investments 61,250 Common stock 250,000 Equipment (net) (5-year remaining life) 260,000 Inventory 121,500 Land 105,000 Long-term liabilities (mature 12/31/20) 174,500 Retained earnings, 1/1/17 264,650 Supplies 16,200 Totals $ 791,550 $ 791,550 During 2017, Abernethy reported net income of $86,000 while declaring and paying dividends of $11,000. During 2018, Abernethy reported net income of $124,500 while declaring and paying dividends of $47,000. Assume that Chapman Company acquired Abernethy’s common stock for $675,160 in cash. Assume…arrow_forward
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