(a)
Introduction:
Consolidating entries needed to prepare three part consolidated worksheet.
(a)
Explanation of Solution
Journal Entries
S. no | Date | Particulars | Debit | Credit |
1 | Investment in S | $128,000 | ||
Cash | $128,000 | |||
(Initial investment in S recognized) | ||||
2 | Investment in S | $ 24,000 | ||
Income from S | $ 24,000 | |||
(Entry for P’s share in S co.’s income) | ||||
3 | Cash | $ 16,500 | ||
Investment in S | $ 16,500 | |||
(Entry for P’s share in S co.’s dividend) | ||||
4 | Income from S | $ 7,500 | ||
Investment in S | $ 7,500 | |||
(Amortization of excess acquisition price) | ||||
5 | Common stock | $ 60,000 | ||
Retained earnings | $ 40,000 | |||
Income from S | $ 24,000 | |||
Dividend declared | $ 16,000 | |||
Investment in S | $108,000 | |||
(Basic elimination entry) | ||||
6 | $ 2,000 | |||
$ 5,500 | ||||
Income from S | $ 7,500 | |||
(Amortized excess value reclassification entry) | ||||
7 | Building and equipment | $ 20,000 | ||
Goodwill | $ 2,500 | |||
| $ 2,000 | |||
Investment in S | $ 20,500 | |||
(Excess value reclassification entry) |
Book value calculations: | |||||||
Total book value | = | Common stock | + | Retained earnings | |||
Original book value | $ 100,000 | $ 60,000 | $ 40,000 | ||||
Add: Net Income | $ 24,000 | $ 24,000 | |||||
Less: Dividends | $ (16,000) | $ (16,000) | |||||
Ending book value | $ 108,000 | $ 60,000 | $ 48,000 |
Excess value calculations: | |||||||
Total book value | = | Building and equipment | + | Accumulated depreciation | + | Goodwill | |
Beginning balance | $ 28,000 | $ 20,000 | $ 8,000 | ||||
Changes | $ (7,500) | $ (2,000) | $ (5,500) | ||||
Ending balance | $ 20,500 | $ 20,000 | $ (2,000) | $ 2,500 |
- Recording the initial investment in S
- Recording P’s share in S co.’s income
- Recording P’s share in S co.’s dividend
- Recording the amortization of excess acquisition price
- Recording the basic elimination entry
- Recording the amortized excess value reclassification entry
- Recording the excess value reclassification entry
(b)
Introduction: A consolidated worksheet is used to prepare the consolidated financial statements of the parent company and its subsidiary. It reflects the individual values of the parent and the subsidiary and then one consolidated figure for both the entities.
Three-part consolidation worksheet for 20X8
(b)
Answer to Problem 4.33P
The consolidated net income is $59,000
The consolidated retained earnings as on December 31, 20X8 is $131,000
The total consolidated assets are $618,000
The total consolidated liabilities and equities are $618,000
Explanation of Solution
Consolidated Work paper as on December 31, 20X8 | |||||
Particulars | P | S | Eliminations | Consolidated | |
Income statement | Debit | Credit | |||
Sales | $ 260,000 | $ 180,000 | $ 440,000 | ||
Less: | |||||
Cost of goods sold | $ (125,000) | $ (110,000) | $ (235,000) | ||
Wage expense | $ (42,000) | $ (27,000) | $ (69,000) | ||
Depreciation expense | $ (25,000) | $ (10,000) | $ 2,000 | $ (37,000) | |
Interest income | $ (12,000) | $ (4,000) | $ (16,000) | ||
Other expenses | $ (13,500) | $ (5,000) | $ (18,500) | ||
Impairment loss | $ (5,500) | $ (5,500) | |||
Net income before subsidiary earning | $ 42,500 | $ 24,000 | $ 59,000 | ||
Income from Saver Company | $ 16,500 | $ 24,000 | $ 7,500 | ||
Net income | $ 59,000 | $ 24,000 | $ 59,000 | ||
Statement of Retained Earnings | |||||
Beginning balance | $ 102,000 | $ 40,000 | $ 40,000 | $ 102,000 | |
Income, from above | $ 59,000 | $ 24,000 | $ 59,000 | ||
Dividends declared | $ (30,000) | $ (16,000) | $ 16,000 | $ (30,000) | |
Ending balance | $ 131,000 | $ 48,000 | $ 131,000 | ||
Balance Sheet | |||||
Cash | $ 19,500 | $ 21,000 | $ 40,500 | ||
Accounts receivable | $ 70,000 | $ 12,000 | $ 82,000 | ||
Inventory | $ 90,000 | $ 25,000 | $ 115,000 | ||
Land | $ 30,000 | $ 15,000 | $ 45,000 | ||
Buildings and equipment | $ 350,000 | $ 150,000 | $ 20,000 | $ 520,000 | |
Less: Accumulated depreciation | $ (145,000) | $ (40,000) | $ 2,000 | $ (187,000) | |
Investment in S's stock | $ 128,500 | $ 128,500 | |||
Goodwill | $ 2,500 | $ 2,500 | |||
Total assets | $ 543,000 | $ 183,000 | $ 618,000 | ||
Liabilities | |||||
Accounts payable | $ 45,000 | $ 16,000 | $ 61,000 | ||
Wages payable | $ 17,000 | $ 9,000 | $ 26,000 | ||
Notes payable | $ 150,000 | $ 50,000 | $ 200,000 | ||
Common stock: | $ 200,000 | $ 60,000 | $ 60,000 | $ 200,000 | |
Retained earnings from above | $ 131,000 | $ 48,000 | $ 48,000 | $ 131,000 | |
Total liabilities and equities | $ 543,000 | $ 183,000 | $ 618,000 |
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Chapter 4 Solutions
ADVANCED FINANCIAL ACCOUNTING-ACCESS
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