Concept explainers
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 consolidated worksheet for elimination and adjustments for the year end December
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Advanced Accounting
- On 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_forwardCardinal 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_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_forward
- Nascent, Inc., acquires 60 percent of Sea-Breeze Corporation for $414,000 cash on January 1, 2015. The remaining 40 percent of the Sea-Breeze shares traded near a total value of $276,000 both before and after the acquisition date. On January 1, 2015, Sea-Breeze had the following assets and liabilities:The companies’ financial statements for the year ending December 31, 2018, follow:Answer the following questions:a. How can the accountant determine that the parent has applied the initial value method?b. What is the annual excess amortization initially recognized in connection with this acquisition?c. If the parent had applied the equity method, what investment income would the parent have recorded in 2018?d. What amount should the parent report as retained earnings in its January 1, 2018, consolidated balance sheet?e. What is consolidated net income for 2018 and what amounts are attributable to the controlling and noncontrolling interests?f. Within consolidated statements at January 1,…arrow_forwardOn January 2, 20Y7, Mikedes Company acquired 30% of the outstanding stock of Violet Company for $720,000. For the year ended December 31, 20Y7, Violet Company earned income of $190,000 and paid dividends of $40,000. On January 31, 20Y8, Mikedes Company sold all of its investment in Violet Company stock for $770,000. Required: Journalize the entries for Mikedes Company for the purchase of the stock, the share of Violet income, the dividends received from Violet Company, and the sale of the Violet Company stock. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will automatically indent a credit entry when a credit amount is entered.arrow_forwardOn December 31, 2016, immediately after Todd Company’s acquisition of 80% of Keller Company, their balance sheets are as attached:An appraisal on December 31, 2016, which is considered carefully and approved by the boards of directors of both companies, places a total replacement value, less depreciation, of $2,800,000 on Keller’s depreciable fixed assets. The remaining depreciable life is 20 years. Todd Company offers to purchase all the assets of Keller Company, subject to its liabilities, as of December 31, 2016, for $2,500,000. Some of the stockholders of Keller Company object to the price because it does not include enough consideration for goodwill. 20% of the shareholders elect not to sell their shares. A counterproposal is made to 80% of the shareholders and an agreement is reached. In exchange for its own shares, Todd acquires 8,000 shares of the common stock of Keller at the agreed-upon $280 per share. The price includes a control premium. The shares held by the NCI are…arrow_forward
- e of cents Price Company purchased 90% of the outstanding common stock of Score Company on January 1, 2016, for $450,000. At that time, Score Company had stockholders' equity consisting of common stock, $200,000; other com $160,000; and retained earnings, $90,000. On December 31, 2020, trial balances for Price Company and Score Company were as follows: Price $ 109,000 $ Cash Accounts Receivable Note Receivable Inventory Investment in Score Company Plant and Equipment Land Score 78,000 94,000 -0- 166,000 75,000 309,000 158,000 450,000 -0- 940,000 420,000 160,000 70,000 70,000 50,000 822,000 242,000 250,500 124,000 Dividends Declared Cost of Goods Sold Operating Expenses Total Debits Accounts Payable Notes Payable Common Stock $3,351,500 $1,236,000 $ 132,000 $ 46,000 300,000 120,000 500,000 200,000 260,000 160,000 Other Contributed Capital Retained Earnings, 1/1 Sales Dividend and Interest Income Total Credits 687,000 1,420,000 52,500 $3.351,500 $1,236,000 210,000 500,000 -0- Price…arrow_forwardP Company owns 60% of the outstanding common stock of S Company. On January 1, 2016, P Company sold equipment to S Company for $300,000. The equipment cost P Company $1,000,000 on January 1st, 2010. The useful life at the time of sale was determined to be 10 years. After the sale from P to S, the management of S Company estimated that the equipment had a remaining useful life of 8 years. To solve: Prepare all journal entries for P and S (from initial purchase of equipment from 3rd parties, depreciation from initial purchase to sale between the related parties) on January 1, 2016 . In addition, prepare the w/p entry to eliminate the intercompany sale of equipment as of January 1, 2016. Finally, prepare the adjustment to depreciation on Dec. 31, 2016.arrow_forwardOn January 1, Year 2, PAT Ltd. acquired 90% of SAT Inc. when SAT's retained earnings were $1,000,000. There was no acquisition differential. PAT accounts for its investment under the cost method. SAT sells inventory to PAT on a regular basis at a markup of 30% of selling price. The intercompany sales were $160,000 in Year 2 and $190,000 in Year 3. The total amount owing by PAT related to these intercompany sales was $60,000 at the end of Year 2 and $50,000 at the end of Year 3. On January 1, Year 3, the inventory of PAT contained goods purchased from SAT amounting to $70,000, while the December 31, Year 3, inventory contained goods purchased from SAT amounting to $80,000. Both companies pay income tax at the rate of 40%. Selected account balances from the records of PAT and SAT for the year ended December 31, Year 3, were as follows: Inventory Accounts Payable Retained Earnings, Beg. of Year Sales Cost of Sales Income Tax Expense PAT $510,000 700,000 2,500,000 4,100,000 3,200,000…arrow_forward
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