13–21 Solutions
13.22 continued.
(5) Advance from Joyce Company …………………………... 4,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–4,000
–4,000
To record repayment of advance.
(6) Retained Earnings …………………………………………….. 20,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–20,000
–20,000
R E
To record declaration and payment of dividend.
13.23 (Alpha/Omega; working backwards from data which has eliminated
intercompany transactions.)
13.24 (Homer/Tonga; working backwards from purchase data.)
b. Carrying Value of Total Assets (from Part
a.
) …………………… $ 1,060,000
Solutions 13–22
13.25 (Effect of equity method versus consolidation.)
a. (1) When Parent uses the equity method, it recognizes 80% of the net
(2) Liabilities in the numerator increase by the amount of the liabilities of
b. (1) The Parent or investor’s share of Sub’s net income declines,
(2) Total assets decrease when using the equity method because the
(3) The liabilities of Sub do not appear on Parent’s balance sheet when it
(4) Total liabilities do not change when preparing consolidated financial
(5) Shareholders’ equity decreases when using the equity method
13–23 Solutions
(6) Assets and liabilities do not change with the decrease in ownership
Solutions 13–24
13.26 (Effect of errors on financial statements.)
Shareholders’
Assets Liabilities Equity Net Income
a. O/S No O/S O/S
13.27 (Parrot Corporation; accounting for a joint venture.)
a. Equity Proportionate
Method Consolidation
Current Assets ……………………………………….. $ 300 $ 400
Property, Plant and Equipment (Net) …………. 500 800
b. (1) Equity Method
(2) Consolidation
c. The liabilities to asset ratio is larger with proportionate consolidation,
13–25 Solutions
Solutions 13–26
13.28 (Ely Company and Sims Company; preparing a consolidated balance sheet.)
Ely Sims
Company Company Consolidated
Assets
Cash …………………………………. $ 12,000 $ 5,000 $ 17,000
Receivables ……………………….. 25,000 15,000 32,500
Investment in Sims Com-
The elimination entries (not required) are as follows:
Common Stock ……………………………………………………… 10,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+18,000
–10,000
ContriCap
–78,000
–50,000
ContriCap
To eliminate investment account, the shareholders’
equity of Sims Company, and recognize the excess price
as an asset.
Current Liabilities …………………………………………………… 7,500
Receivables ……………………………………………………… 7,500
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–7,500
–7,500
IncSt → RE
13–27 Solutions
Solutions 13–28
13.29 (Company P and Company S; preparing a consolidated balance sheet.)
a. Company P Company S Consolidated
Assets
Cash ……………………………. $ 36,000 $ 26,000 $ 62,000
Liabilities and Share–
holders’ Equity
Accounts and Notes
Payable ……………………. $ 110,000 $ 59,000 $ 152,600
The elimination entries (not required) are as follows:
Common Stock …………………………………………………. 500,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+56,000
–500,000
ContriCap
–726,000
–100,000
ContriCap
–70,000
R E
13–29 Solutions
Solutions 13–30
13.29 a. continued.
Accounts and Notes Payable ……………………………… 16,400
Accounts and Notes Receivable ……………………… 16,400
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–16,400
–16,400
IncSt → RE
To eliminate intercompany note.
b. The unamortized excess acquisition cost on December 31, 2009 is
$56,000. With eight years remaining on the building’s useful life, the
Common Stock of Company S ……………………………………….. $ 500,000
Additional Paid-In Capital of Company S …………………………. 100,000
c. Acquisition Cost on January 1, 2008 ……………………………….. $ 710,000
Company P’s Share of the Increase in Retained Earnings
13.30 (Peak Company and Valley Company; equity method and consolidated
financial statements.)
a. January 1
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+50,000
–50,000
13–31 Solutions
Solutions 13–32
13.30 a. continued.
December 31
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+10,000
+10,000
IncSt → RE
To recognize share of Valley Company’s earnings.
December 31
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+4,000
–4,000
To recognize dividend received from Valley Company.
b. Peak Valley
Company Company Consolidated
Investment in Valley
Liabilities and Share–
Total Liabilities and
13–33 Solutions
Solutions 13–34
13.30 b. continued.
Sales Revenue ……………… $ 400,000 $ 125,000 $ 525,000
The elimination entries (not required) are as follows:
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–56,000
–5,000
ContriCap
–51,000
R E
To eliminate the investment account and the share-
holders’ equity accounts of Valley Company.
An alternative elimination entry using amounts before closing entries is as
follows:
Common Stock …………………………………………………. 5,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–56,000
–5,000
ContriCap
–45,000
R E
–10,000
IncSt → RE
+4,000
R E
To eliminate the investment account and the share-
13–35 Solutions
holders’ equity accounts of Valley Company.
Solutions 13–36
13.30 continued.
c. January 1
Cash ……………………………………………………………. 70,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+70,000
–70,000
To record acquisition of 100% of Valley Company.
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+10,000
+10,000
IncSt → RE
To recognize share of Valley Company’s earnings.
December 31
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+4,000
–4,000
To recognize dividend received from Valley Company.
December 31
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–2,000
–2,000
To recognize acquisition of excess cost: $2,000 =