EBK ADVANCED ACCOUNTING
13th Edition
ISBN: 8220103675932
Author: Hoyle
Publisher: YUZU
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Question
Chapter 5, Problem 36P
a.
To determine
Show how Company P computed its $39,000 equity in Company S’s earnings balance.
a.
Expert Solution
Explanation of Solution
Computation of equity in Company S’s earnings balance:
Particulars | Amount |
Net income of the subsidiary | $(90,000) |
Amortization of patented technology | $ 29,000 |
Unrealized gross profit of 2017 realized | $(13,000) |
Unrealized gross profit of 2018 deferred | $ 19,000 |
Gain on sale of land deferred | $ 16,000 |
Equity in earnings | $(39,000) |
Table: (1)
Working note:
Computation of closing stock in 2017:
Particulars | Amount |
Sales price in 2017 | $ 125,000 |
Resold % | 74% |
Unsold % | 26.00% |
Closing stock in 2017 | $ 32,500 |
Table: (2)
Computation of unrealized profit on closing stock:
Year | Sales (A) | Cost of goods sold (B) | Profit | Closing stock (D) | Profit on closing stock |
2017 | $ 125,000 | $ 75,000 | $ 50,000 | $ 32,500 | $ 13,000 |
2018 | $ 140,000 | $ 70,000 | $ 70,000 | $ 38,000 | $ 19,000 |
Table: (3)
b.
To determine
Prepare a 2018 consolidated worksheet for Company P and Company S.
b.
Expert Solution
Explanation of Solution
Consolidated worksheet for Company P and Company S in 2018:
Company P and Company S | |||||
Consolidation Worksheet | |||||
Year ending December 31, 2018 | |||||
Consolidation entries | |||||
Accounts | Company P | Company S | Debit | Credit | Consolidated totals |
Revenues | $ (710,000) | $ (360,000) | $ 140,000 | $ (930,000) | |
Cost of goods sold | $ 305,000 | $ 189,000 | $ 19,000 | $ 140,000 | |
$ 13,000 | $ 360,000 | ||||
Other operating expenses | $ 167,000 | $ 81,000 | $ 29,000 | $ 277,000 | |
Gain on sale of land | $ (16,000) | $ - | $ 16,000 | $ - | |
Equity in Company S's earnings | $ (39,000) | $ - | $ 39,000 | $ - | |
Net income | $ (293,000) | $ (90,000) | $ (293,000) | ||
Balance Sheet | |||||
Cash and receivables | $ 102,000 | $ 154,000 | $ 62,000 | $ 194,000 | |
Inventory | $ 311,000 | $ 110,000 | $ 19,000 | $ 402,000 | |
Investment in Company S | $ 691,000 | $ - | $ 25,000 | $ 429,000 | |
$ 248,000 | |||||
$ 39,000 | |||||
Trademarks | $ - | $ 58,000 | $ 45,000 | $ 103,000 | |
Land, buildings, and equip. (net) | $ 638,000 | $ 280,000 | $ 16,000 | $ 902,000 | |
Patented technology | $ - | $ 125,000 | $ 203,000 | $ 29,000 | $ 299,000 |
Total assets | $ 1,742,000 | $ 727,000 | $ 1,900,000 | ||
Liabilities | $ (462,000) | $ (220,000) | $ 62,000 | $ (620,000) | |
Common stock | $ (400,000) | $ (100,000) | $ (400,000) | ||
Additional paid-in capital | $ (300,000) | $ (50,000) | $ (300,000) | ||
| $ (580,000) | $ (357,000) | $ (580,000) | ||
Total liabilities and equity | $(1,742,000) | $ (727,000) | $ (1,900,000) |
Table: (4)
Working note:
Statement of retained earnings | Company P | Company S | Debit | Credit | Consolidated totals |
Retained earnings 1/1/18 | $ (367,000) | $ (292,000) | $ 13,000 | $ (367,000) | |
$ 279,000 | |||||
Net income | $ (293,000) | $ (90,000) | $ (293,000) | ||
Dividends declared | $ 80,000 | $ 25,000 | $ 25,000 | $ 80,000 | |
Retained earnings 12/31/18 | $ (580,000) | $ (357,000) | $ (580,000) |
Table: (5)
Computation of unamortized amount of patented technology:
Value of Unamortized patented technology as on 31/12/2017 | |
Original value as on 01/01/2017 | $ 232,000 |
Less: Amortization during the year | $ 29,000 |
Unamortized value as on 31/12/2017 | $ 203,000 |
Table: (6)
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