(a) Date Account Titles and Explanation Debit Credit 2013 (To eliminate intercom
ID: 2525194 • Letter: #
Question
(a)
Date
Account Titles and Explanation
Debit
Credit
2013
(To eliminate intercompany dividends)
(To eliminate the investment account)
(To allocate and depreciate the difference between implied and book value)
2014
(To establish reciprocity/convert to equity method as of 1/1/2011)
(To eliminate intercompany dividends)
(To eliminate investment account and create noncontrolling interest account)
(To allocate and depreciate the difference between implied and book value)
2015
(To establish reciprocity/convert to equity method as of 1/1/2012)
(To eliminate intercompany dividends)
(To eliminate investment account and create noncontrolling interest account)
(To allocate and depreciate the difference between implied and book value)
On January 1, 2013, Piper Company acquired an 80% interest in Sand Company for $2,234,200. At that time the common stock and retained earnings of Sand Company were $1,761,100 and $691,600, respectively. Differences between the fair value and the book value of the identifiable assets of Sand Company were as follows:Fair Value in Excess
of Book Value Inventory $43,200 Equipment (net) 51,000
The book values of all other assets and liabilities of Sand Company were equal to their fair values on January 1, 2013. The equipment had a remaining useful life of eight years. Inventory is accounted for on a FIFO basis. Sand Company’s reported net income and declared dividends for 2013 through 2015 are shown here:
2013 2014 2015 Net Income $103,300 $148,700 $81,300 Dividends 20,300 30,600 15,400
Prepare the eliminating/adjusting entries needed on the consolidated worksheet for the years ended 2013, 2014, and 2015.
Explanation / Answer
Calculation of Goodwill/Capital Reserve (assuming cost method)
*22,34,200/0.80=27,92,750
#17,61,000+6,91,600=24,52,600
24,52,600*.80=19,62,080
^ 43,200*.80=34,560
51,000*.80=40,800
Journal Entries
2013
(1) Dividend Income Dr. 16,240
To Dividends Declared (0.80 * $20,300) 16,240
(To eliminate intercompany dividends)
(2) Beginning Retained Earnings-Sand 6,91,600
Common Stock-Sand 17,16,100
Difference between Implied and Book Value A/c Dr 340,150
To Investment in Sand Company 2,2,72,120
To Noncontrolling Interest 68,030
(To eliminate investment account)
(3) Inventory A/c 43,200
Depreciation Expense ($51,000/8) 6,375
Equipment (net) ($51,000 – $6,375) 44,625
Goodwill 245,950
Difference between Implied and Book Value 3,40,150
(To allocate and depreciate the difference between implied and book value)
Alternative to entry (3)
(3a) Inventory 43,200
Equipment (net) 51,000
Goodwill 245,950
Difference between Implied and Book Value 3,40,150
(3b) Depreciation Expense ($51,000/8) 6,375
Equipment (net) 6,,375
2014
(1) Investment in Sand Company ($(1,03,300-20,300=83,000)* 0.80) 66,400
Beginning Retained Earnings - Piper Company 66,400
(To establish reciprocity/convert to equity method as of 1/1/2014)
(2) Dividend Income ($30,600 * 0.80) 24,480
Dividends Declared 24,480
(To eliminate intercompany dividends)
(3) Beginning Retained Earnings-Sand Company 7,74,600
($6,91,600 + $103,300 – $20,300)
Common Stock-Sand Company 17,61,100
Difference between Implied and Book Value 340,150
Investment in Sand Company ($22,34,200 + $66,400) 23,00,600
Noncontrolling Interest ($5,58,550 + ($7,74,600 – $6,91,600) x 0.20) 5,75,150
(To eliminate investment account and create noncontrolling interest account)
(4) Beginning Retained Earnings-Piper Company 39,660
Noncontrolling Interest 9915
Depreciation Expense 6,375
Equipment (net) ($51,000 – $6,375 – $6,375) 38,250
Goodwill 2,45,950
Difference between Implied and Book Value 340,150
(To allocate and depreciate the difference between implied and book value)
2012
(1) Investment in Sand Company (($1,48,700-$30,300+$81,300) * 0.80) 1,59,760
Beginning Retained Earnings-Piper Company 1,59,760
(To establish reciprocity/convert to equity method as of 1/1/2015)
(2) Dividend Income ($15,400 * 0.80) 12,320
Dividends Declared 12,320
(To eliminate intercompany dividends)
(3) Beginning Retained Earnings-Sand ($7,74,600 + $1,48,600 – $30,300) 8,92,900
Common Stock- Sand Company 17,61,100
Difference between Implied and Book Value 340,150
Investment in Sand Company ($22,34,200 + $1,59,760) 23,93,960
Noncontrolling Interest 6,00,190
(To eliminate investment account and create noncontrolling interest account)
(4) Beginning Retained Earnings-Piper Company 44,760
Noncontrolling Interest 11,190
Depreciation Expense 6,375
Equipment (net) 31,875
Goodwill 2,45,950
Difference between Implied and Book Value 340,150
To allocate and depreciate the difference between implied and book value
Parent share Non-Controlling Share Entire Value Purchase price and implied value 22,34,200 5,58,550 27,92,750* Less: Book Value of interest acquired (19,62,080)# (4,90,520) (24,52,600)# Difference 2,72,120 68,030 3,40,150 Inventory (34,560)^ (8,640) (43,200) Equipment (40,800)^ (10,200) (51,000) Balance 1,96,760 49,190 2,45,950 Goodwill (1,96,760) (49,190) (2,45,950) Difference 0 0 0Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.