Chapter 02 – Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with no Differential
P2-24 Consolidated Worksheet at End of the Second Year of Ownership (Equity Method)
a.
Equity Method Entries on Peanut Co.’s Books:
Investment in Snoopy Co.
80,000
Income from Snoopy Co.
80,000
Cash
30,000
Investment in Snoopy Co.
30,000
Book Value Calculations:
Total
Book Value
=
Common
Stock
+
Retained
Earnings
Beg. book value
355,000
200,000
155,000
+ Net Income
80,000
80,000
– Dividends
(30,000)
(30,000)
Ending book value
405,000
200,000
205,000
P2–24 (continued)
Basic Consolidation Entry
Common stock
200,000
Retained earnings
155,000
Income from Snoopy Co.
80,000
Dividends declared
30,000
Investment in Snoopy Co.
405,000
Optional accumulated depreciation consolidation entry
Accumulated depreciation
10,000
Buildings & equipment
10,000
Note that this entry is carried forward from the previous year (see solution to P2-23) again
assuming that no sales or other disposals of Buildings and equipment took place during the year.
Investment in
Income from
Snoopy Co.
Snoopy Co.
Beginning
Balance
355,000
Net Income
80,000
80,000
Net Income
30,000
Dividends
Ending Balance
405,000
80,000
Ending Balance
405,000
Basic
80,000
0
0
P2–24 (continued)
Peanut
Co.
Snoopy
Co.
Consolidation
Entries
DR
CR
Consolidated
Income Statement
Sales
850,000
300,000
1,150,000
Less: COGS
(270,000)
(150,000)
(420,000)
Less: Depreciation Expense
(50,000)
(10,000)
(60,000)
Less: Other Expenses
(230,000)
(60,000)
(290,000)
Income from Snoopy Co.
80,000
80,000
0
Net Income
380,000
80,000
80,000
0
380,000
Statement of Retained
Earnings
Beginning Balance
525,000
155,000
155,000
525,000
Net Income
380,000
80,000
80,000
0
380,000
Less: Dividends Declared
(225,000)
(30,000)
30,000
(225,000)
Ending Balance
680,000
205,000
235,000
30,000
680,000
Balance Sheet
Cash
230,000
75,000
305,000
Accounts Receivable
190,000
80,000
270,000
Inventory
180,000
100,000
280,000
Investment in Snoopy Co.
405,000
405,000
0
Land
200,000
100,000
300,000
Buildings & Equipment
700,000
200,000
10,000
890,000
Less: Accumulated Depreciation
(500,000)
(30,000)
10,000
(520,000)
Total Assets
1,405,000
525,000
10,000
415,000
1,525,000
Accounts Payable
75,000
35,000
110,000
Bonds Payable
150,000
85,000
235,000
Common Stock
500,000
200,000
200,000
500,000
Retained Earnings
680,000
205,000
235,000
30,000
680,000
Total Liabilities & Equity
1,405,000
525,000
435,000
30,000
1,525,000
P2-25 Consolidated Worksheet at End of the First Year of Ownership (Equity Method)
a.
Equity Method Entries on Paper Co.’s Books:
Investment in Scissor Co.
370,000
Cash
370,000
Record the initial investment in Scissor Co.
Investment in Scissor Co.
93,000
Income from Scissor Co.
93,000
Record Paper Co.’s 100% share of Scissor Co.’s 20X8 income
Cash
25,000
Investment in Scissor Co.
25,000
Record Paper Co.’s 100% share of Scissor Co.’s 20X8 dividend
Book Value Calculations:
Total
Book Value
=
Common
Stock
+
Retained
Earnings
Beginning book
value
370,000
250,000
120,000
+ Net Income
93,000
93,000
– Dividends
(25,000)
(25,000)
Ending book value
438,000
250,000
188,000
P2–25 (continued)
Basic Consolidation Entry
Common stock
250,000
Retained earnings
120,000
Income from Scissor Co.
93,000
Dividends declared
25,000
Investment in Scissor Co.
438,000
Optional accumulated depreciation consolidation entry
Accumulated depreciation
24,000
Buildings & equipment
24,000
The amount of this entry is found by looking at the depreciation expense ($12,000) for the year
and the accumulated depreciation at the end of the year ($36,000). The difference must be what
was in accumulated depreciation at the date of the acquisition. Note that this assumes there were
no sales or other disposals of Buildings and equipment during the year.
Investment in
Income from
Scissor Co.
Scissor Co.
Acquisition Price
370,000
Net Income
93,000
93,000
Net Income
25,000
Dividends
Ending Balance
438,000
93,000
Ending Balance
438,000
Basic
93,000
0
0
P2–25 (continued)
Paper
Co.
Scissor
Co.
Consolidation
Entries
DR
CR
Consolidated
Income Statement
Sales
800,000
310,000
1,110,000
Less: COGS
(250,000)
(155,000)
(405,000)
Less: Depreciation Expense
(65,000)
(12,000)
(77,000)
Less: Other Expenses
(280,000)
(50,000)
(330,000)
Income from Scissor Co.
93,000
93,000
0
Net Income
298,000
93,000
93,000
0
298,000
Statement of Retained
Earnings
Beginning Balance
280,000
120,000
120,000
280,000
Net Income
298,000
93,000
93,000
0
298,000
Less: Dividends Declared
(80,000)
(25,000)
25,000
(80,000)
Ending Balance
498,000
188,000
213,000
25,000
498,000
Balance Sheet
Cash
122,000
46,000
168,000
Accounts Receivable
140,000
60,000
200,000
Inventory
190,000
120,000
310,000
Investment in Scissor Co.
438,000
438,000
0
Land
250,000
125,000
375,000
Buildings & Equipment
875,000
250,000
24,000
1,101,000
Less: Accumulated Depreciation
(565,000)
(36,000)
24,000
(577,000)
Total Assets
1,450,000
565,000
24,000
462,000
1,577,000
Accounts Payable
77,000
27,000
104,000
Bonds Payable
250,000
100,000
350,000
Common Stock
625,000
250,000
250,000
625,000
Retained Earnings
498,000
188,000
213,000
25,000
498,000
Total Liabilities & Equity
1,450,000
565,000
463,000
25,000
1,577,000
P2-26 Consolidated Worksheet at End of the Second Year of Ownership (Equity Method)
a.
Equity Method Entries on Paper Co.’s Books:
Investment in Scissor Co.
107,000
Income from Scissor Co.
107,000
Record Paper Co.’s 100% share of Scissor Co.’s 20X9 income
Cash
30,000
Investment in Scissor Co.
30,000
Record Paper Co.’s 100% share of Scissor Co.’s 20X9 dividend
Book Value Calculations:
Total
Book
Value
=
Common
Stock
+
Retained
Earnings
Beg. book value
438,000
250,000
188,000
+ Net Income
107,000
107,000
– Dividends
(30,000)
(30,000)
Ending book value
515,000
250,000
265,000
P2–26 (continued)
Basic Consolidation Entry
Common stock
250,000
Retained earnings
188,000
Income from Scissor Co.
107,000
Dividends declared
30,000
Investment in Scissor Co.
515,000
Optional accumulated depreciation consolidation entry
Accumulated depreciation
24,000
Buildings & equipment
24,000
Note that this entry is carried forward from the previous year (see solution to P2-25) again
assuming that no sales or other disposals of Buildings and equipment took place during the year.
Investment in
Income from
Scissor Co.
Scissor Co.
Beginning
Balance
438,000
Net Income
107,000
107,000
Net Income
30,000
Dividends
Ending Balance
515,000
107,000
Ending Balance
515,000
Basic
107,000
0
0