ADV. ACCT CONNECT STAND ALONE
13th Edition
ISBN: 9781266295744
Author: Hoyle
Publisher: MCG
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Question
Chapter 5, Problem 32P
a.
To determine
Prepare a schedule that calculates the Equity in Earnings of Company S account balance.
a.
Expert Solution
Explanation of Solution
The schedule that calculates the Equity in Earnings of Company S account balance is as follows:
Particulars | Amount |
Reported income of subsidiary | $ 230,000 |
Add: Unrealized profit of 2017 (1) | $ 35,000 |
Less: Unrealized profit of 2018 (2) | $ (40,000) |
Less: Amortization expense of 2018 | $ (70,000) |
Net income of subsidiary | $ 155,000 |
Percentage ownership of controlling interest | 80% |
Equity in earnings of Company S in 2018 | $ 124,000 |
Table: (1)
Working note:
Computation of unrealized gross profit:
2017:
2018:
b.
To determine
Prepare a worksheet to arrive at consolidated figures for external reporting purposes.
b.
Expert Solution
Explanation of Solution
The worksheet to arrive at consolidated figures for external reporting purposes:
Income statement | Company P | Company S | Debit | Credit | Non-controlling interest | Consolidated Balances |
Revenues | $ (1,740,000) | $ (950,000) | $ 300,000 | $ (2,390,000) | ||
Cost of goods sold | $ 820,000 | $ 500,000 | $ 40,000 | $ 35,000 | $ 1,025,000 | |
$ 300,000 | ||||||
Depreciation expense | $ 104,000 | $ 85,000 | $ 189,000 | |||
Amortization expense | $ 220,000 | $ 120,000 | $ 70,000 | $ 410,000 | ||
Interest expense | $ 20,000 | $ 15,000 | $ 35,000 | |||
Equity in income of Company S | $ (124,000) | $ 124,000 | $ - | |||
Net income | $ (700,000) | $ (230,000) | ||||
Consolidated net income | $ (731,000) | |||||
Share of non-controlling interest in net income | $ (31,000) | $ 31,000 | ||||
Share of controlling interest in net income | $ (700,000) | |||||
Balance Sheet | ||||||
Cash | $ 535,000 | $ 115,000 | $ 650,000 | |||
| $ 575,000 | $ 215,000 | $ 790,000 | |||
Inventory | $ 990,000 | $ 800,000 | $ 40,000 | $ 1,750,000 | ||
Investment in Company S | $ 1,420,000 | $ - | $ 20,000 | $ 40,000 | $ - | |
$ 968,000 | ||||||
$ 348,000 | ||||||
$ 124,000 | ||||||
Building and equipment | $ 1,025,000 | $ 863,000 | $ 1,888,000 | |||
Patents | $ 950,000 | $ 107,000 | $ 210,000 | $ 70,000 | $ 1,197,000 | |
| $ - | $ 225,000 | $ 225,000 | |||
Total assets | $ 5,495,000 | $ 2,100,000 | $ 6,500,000 | |||
Accounts payable | $ (450,000) | $ (200,000) | $ (650,000) | |||
Notes payable | $ (545,000) | $ (450,000) | $ (995,000) | |||
Common stock | $ (900,000) | $ (800,000) | $ 800,000 | $ (900,000) | ||
Additional paid-in Capital | $ (300,000) | $ (100,000) | $ 100,000 | $ (300,000) | ||
| $ (3,300,000) | $ (550,000) | $ (3,300,000) | |||
Non-controlling interest in Company S | $ 242,000 | |||||
$ 87,000 | $(355,000) | $ (355,000) | ||||
Total liabilities and equity | $ (5,495,000) | $ (2,100,000) | $ (6,500,000) |
Table: (2)
Working note:
Statement of retained earnings | Company P | Company S | Debit | Credit | Non-controlling interest | Consolidated Balances |
Retained earnings on 01/01 | $ (2,800,000) | $ (345,000) | $ 310,000 | $ (2,800,000) | ||
$ 35,000 | ||||||
Net Income | $ (700,000) | $ (230,000) | $ (700,000) | |||
Dividends declared | $ 200,000 | $ 25,000 | D 20,000 | D 5,000 | $ 200,000 | |
Retained earnings on 31/12 | $ (3,300,000) | $ (550,000) | $ (3,300,000) |
Table: (3)
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ADV. ACCT CONNECT STAND ALONE
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