Chapter 02 – Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with no Differential
P2–26 (continued)
Paper
Co.
Scissor
Co.
Consolidation
Entries
DR
CR
Consolidated
Income Statement
Sales
880,000
355,000
1,235,000
Less: COGS
(278,000)
(178,000)
(456,000)
Less: Depreciation Expense
(65,000)
(12,000)
(77,000)
Less: Other Expenses
(312,000)
(58,000)
(370,000)
Income from Scissor Co.
107,000
107,000
0
Net Income
332,000
107,000
107,000
0
332,000
Statement of Retained
Earnings
Beginning Balance
498,000
188,000
188,000
498,000
Net Income
332,000
107,000
107,000
0
332,000
Less: Dividends Declared
(90,000)
(30,000)
30,000
(90,000)
Ending Balance
740,000
265,000
295,000
30,000
740,000
Balance Sheet
Cash
232,000
116,000
348,000
Accounts Receivable
165,000
97,000
262,000
Inventory
193,000
115,000
308,000
Investment in Scissor Co.
515,000
515,000
0
Land
250,000
125,000
375,000
Buildings & Equipment
875,000
250,000
24,000
1,101,000
Less: Accumulated Depreciation
(630,000)
(48,000)
24,000
(654,000)
Total Assets
1,600,000
655,000
24,000
539,000
1,740,000
Accounts Payable
85,000
40,000
125,000
Bonds Payable
150,000
100,000
250,000
Common Stock
625,000
250,000
250,000
625,000
Retained Earnings
740,000
265,000
295,000
30,000
740,000
Total Liabilities & Equity
1,600,000
655,000
545,000
30,000
1,740,000
P2–27B Consolidated Worksheet at End of the First Year of Ownership (Cost Method)
a.
Cost Method Entries on Peanut Co.’s Books:
Investment in Snoopy Co.
300,000
Cash
300,000
Record the initial investment in Snoopy Co.
Cash
20,000
Dividend Income
20,000
Record Peanut Co.’s 100% share of Snoopy Co.’s 20X8 dividend
Book Value Calculations:
Total
Book Value
=
Common
Stock
+
Retained
Earnings
Original book value
300,000
200,000
100,000
P2–27B (continued)
Investment consolidation entry
Common stock
200,000
Retained earnings
100,000
Investment in Snoopy Co.
300,000
Dividend consolidation entry
Dividend income
20,000
Dividends declared
20,000
Optional accumulated depreciation consolidation entry
Accumulated depreciation
10,000
Buildings & equipment
10,000
The amount of this entry is found by looking at the depreciation expense ($10,000) for the year
and the accumulated depreciation at the end of the year ($20,000). 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
Snoopy Co.
Dividend
Income
Acquisition Price
300,000
20,000
Dividends
Ending Balance
300,000
20,000
Ending Balance
300,000
Basic
20,000
0
0
P2–27B (continued)
Peanut
Co.
Snoopy
Co.
Consolidation
Entries
DR
CR
Consolidated
Income Statement
Sales
800,000
250,000
1,050,000
Less: COGS
(200,000)
(125,000)
(325,000)
Less: Depreciation Expense
(50,000)
(10,000)
(60,000)
Less: Other Expenses
(225,000)
(40,000)
(265,000)
Dividend Income
20,000
20,000
0
Net Income
345,000
75,000
20,000
0
400,000
Statement of Retained
Earnings
Beginning Balance
225,000
100,000
100,000
225,000
Net Income
345,000
75,000
20,000
0
400,000
Less: Dividends Declared
(100,000)
(20,000)
20,000
(100,000)
Ending Balance
470,000
155,000
120,000
20,000
525,000
Balance Sheet
Cash
130,000
80,000
210,000
Accounts Receivable
165,000
65,000
230,000
Inventory
200,000
75,000
275,000
Investment in Snoopy Co.
300,000
300,000
0
Land
200,000
100,000
300,000
Buildings & Equipment
700,000
200,000
10,000
890,000
Less: Accumulated Depreciation
(450,000)
(20,000)
10,000
(460,000)
Total Assets
1,245,000
500,000
10,000
310,000
1,445,000
Accounts Payable
75,000
60,000
135,000
Bonds Payable
200,000
85,000
285,000
Common Stock
500,000
200,000
200,000
500,000
Retained Earnings
470,000
155,000
120,000
20,000
525,000
Total Liabilities & Equity
1,245,000
500,000
320,000
20,000
1,445,000
P2–28B Consolidated Worksheet at End of the Second Year of Ownership (Cost Method)
a.
Cost Method Entries on Peanut Co.’s Books:
Cash
30,000
Dividend Income
30,000
Record Peanut Co.’s 100% share of Snoopy Co.’s 20X9 dividend
b.
Book Value Calculations:
Total
Book Value
=
Common
Stock
+
Retained
Earnings
Original book value
300,000
200,000
100,000
P2–28 (continued)
Investment consolidation entry
Common stock
200,000
Retained earnings
100,000
Investment in Snoopy Co.
300,000
Dividend consolidation entry
Dividend income
30,000
Dividends declared
30,000
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 P2–27B) again
assuming that no sales or other disposals of Buildings and equipment took place during the year.
Investment in
Snoopy Co.
Dividend
Income
Acquisition Price
300,000
20,000
Dividends
Ending Balance
300,000
20,000
Ending Balance
300,000
Basic
20,000
0
0
P2–28 (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)
Dividend Income
30,000
30,000
0
Net Income
330,000
80,000
30,000
0
380,000
Statement of Retained
Earnings
Beginning Balance
470,000
155,000
100,000
525,000
Net Income
330,000
80,000
30,000
0
380,000
Less: Dividends Declared
(225,000)
(30,000)
30,000
(225,000)
Ending Balance
575,000
205,000
130,000
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.
300,000
300,000
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
1,300,000
525,000
10,000
310,000
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
575,000
205,000
130,000
30,000
680,000
Total Liabilities & Equity
1,300,000
525,000
330,000
30,000
1,525,000