ADV. ACCT CONNECT STAND ALONE
13th Edition
ISBN: 9781266295744
Author: Hoyle
Publisher: MCG
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Question
Chapter 5, Problem 31P
a.
To determine
Show how Company M determined the $411,000 Investment in Company S account balance.
a.
Expert Solution
Explanation of Solution
| Particulars | Amount | Amount |
| Consideration transferred on 01/01/2017 | $ 372,000 | |
| Reported income of Company S | $ 60,000 | |
| Patents amortization | $ (7,000) | |
| Amortization of Customer list | $ (3,000) | |
| Adjusted income of Company S | $ 50,000 | |
| Ownership percent of Company P | 60% | |
| Share of Company M in Income of Company S | $ 30,000 | |
| Deferred profit of sale occurred in 2017 | $ (10,000) | |
| Balance as on 12/31/2017 | $ 392,000 | |
| Reported income of Company S | $ 60,000 | |
| Patents amortization | $ (7,000) | |
| Amortization of Customer list | $ (3,000) | |
| Adjusted income of Company S in 2018 | $ 50,000 | |
| Ownership percent of Company P | 60% | |
| Share of Company P in Income of Company S | $ 30,000 | |
| Profit of 2017 recognized | $ 10,000 | |
| Deferred profit of 2018 | $ (12,000) | |
| Equity in earnings of Company S in 2017 | $ 28,000 | |
| Share of Company M in dividends of Company S in 2017 | $ (9,000) | |
| Balance as on 12/31/2017 | $ 411,000 |
Table: (1)
b.
To determine
Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2018.
b.
Expert Solution
Explanation of Solution
The consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2018 is as follows:
| Company M and Company S | ||||||
| Consolidation Worksheet | ||||||
| Year ending December 31, 2018 | ||||||
| Income statement | Company M | Company S | Debit | Credit | Non-controlling interest | Consolidated Balances |
| Revenues | $ (700,000) | $ (335,000) | $ 160,000 | $ (875,000) | ||
| Cost of goods sold | $ 460,000 | $ 205,000 | $ 12,000 | $ 10,000 | $ 507,000 | |
| $ 160,000 | ||||||
| Operating expense | $ 188,000 | $ 70,000 | $ 10,000 | $ 268,000 | ||
| Equity in income of Company S | $ (28,000) | $ 28,000 | $ - | |||
| Net income | $ (80,000) | $ (60,000) | ||||
| Consolidated net income | $ (100,000) | |||||
| Share of non-controlling interest in net income | $ (20,000) | $ 20,000 | ||||
| Share of controlling interest in net income | $ (80,000) | |||||
| Balance Sheet | ||||||
| Cash | $ 248,000 | $ 148,000 | $ 396,000 | |||
| Inventory | $ 233,000 | $ 129,000 | $ 12,000 | $ 350,000 | ||
| Investment in Company S | $ 411,000 | |||||
| Building | $ 308,000 | $ 202,000 | $ 510,000 | |||
| Equipment | $ 220,000 | $ 86,000 | $ 306,000 | |||
| Patents | $ 20,000 | $ 70,000 | $ 14,000 | $ 76,000 | ||
| Customer list | $ 45,000 | $ 6,000 | $ 39,000 | |||
| | $ 185,000 | $ 185,000 | ||||
| Total assets | $ 1,420,000 | $ 585,000 | $ 1,862,000 | |||
| Liabilities | $ (390,000) | $ (160,000) | $ (550,000) | |||
| Common stock | $ (300,000) | $ (100,000) | $ 100,000 | $ (300,000) | ||
| | $ (730,000) | $ (325,000) | $ (730,000) | |||
| Non-controlling interest in Company S | $ 268,000 | |||||
| $ 14,000 | ||||||
| $ 282,000 | $ (282,000) | |||||
| Total liabilities and equity | $ (1,420,000) | $ (585,000) | $ 1,862,000 | |||
Table: (2)
Working note:
| Statement of retained earnings | Company M | Company S | Debit | Credit | Non-controlling interest | Consolidated Balances |
| Retained earnings on 01/01 | $ (695,000) | $ (280,000) | $ 280,000 | $ (695,000) | ||
| Net Income | $ (80,000) | $ (60,000) | $ (80,000) | |||
| Dividends declared | $ 45,000 | $ 15,000 | $ 9,000 | $ 6,000 | $ 45,000 | |
| Retained earnings on 31/12 | $ (730,000) | $ (325,000) | $ (730,000) |
Table: (3)
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