ADVANCED ACCOUNTING W/CONNECT>CUSTOM<
18th Edition
ISBN: 9781307126402
Author: Hoyle
Publisher: MCG/CREATE
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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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