Exercise 7 (LO 3) Cost method, first year, eliminations, statements. (Note: Read
ID: 340846 • Letter: E
Question
Exercise 7 (LO 3) Cost method, first year, eliminations, statements. (Note: Read carefully, as this is not the same as Exercise 3 or 5') Parker Company acquires an 80% interest in Sargent Company for $300,000 in cash on January 1, 2015, when Sargent Company has the following balance sheet: Assets Liabilities and E 50,000 100,000 150,000 $300,000 Current assets Depreciable fixed assets. $100,000 Crrent liabilities 200,000 Common stock ($10 parl) Retained earnings tal liabilities and equity Total assets.... $300,000 0 The excess of the price paid over book value is attributable to the fixed assets, which have a fair value of $250,000, and to goodwill. The fixed assets have a 10-year remaining life. Parker Company uses the cost method to record its investment in Sargent Company. The following trial balances of the two companies are prepared on December 31, 2015: Parker 400,000 250,000 Sargent Current Assets Depreciable Fixed Assets 0,000 30,000 200,000 106,000 20,000) Investment in Salt Company Current Liabilities Common Stock ($10par) Retained Earnings, January 1, 20X2 Sales 60,000) (40,000) 300,000)100,000 (200,0001 (150,0001 50,000 (100,000 75,000 110,000 (4,0001 Dividend Income lfrom Salt Company Dividends Declared 5,000 Total 1. If you did not solve Exercise 3 or 5, prepare a determination and distribution of excess schedule for the investment (a value a 2. Prepare all the eliminations and adjustments that would be made on the 2015 consolidatecd s is not nceded). worksheet. 3. If you did not solve Exercise 3 or 5, prepare the 2015 consolidated income statement and its related income distribution schedules. 4. If you did not solve Exercise 3 or 5, prepare the 2015 statement of retained earnings. 5. If you did not solve Exercise 3 or 5, prepare the 2015 consolidated balance sheet.Explanation / Answer
1) Determination and distribution of excess schedule Fair Value Parent Price Minority Interest Fair value of Subsidiary=($300000*100/80) $ 375,000.00 375000*80%=$300000 375000*20%=$75000 Less: Book Value of Interest acquired Common stock $ 100,000.00 Retained Earnings $ 150,000.00 Total Equity $ 250,000.00 $ 250,000.00 $ 250,000.00 Interest Acquired 80% 20% Book Value $ 200,000.00 $ 50,000.00 Excess of fair value over book value $ 125,000.00 $ 100,000.00 $ 25,000.00 Adjustment of Identifiable Accounts Adjustment Life Amortization Fixed Assets($250000-$200000) $ 50,000.00 10 $ 5,000.00 Goodwill $ 75,000.00 Total $ 125,000.00 Journal Entries Particular Debit Credit 2) Sarget Income=($100000-$75000)*80% $ 20,000.00 To Investment in Sarget Co. $ 20,000.00 Investment in Sarget Co.(5000*80%) $ 4,000.00 To Dividend Declared $ 4,000.00 Common Stock=($100000*80%) $ 80,000.00 Retained Earnings($150000*80%) $ 120,000.00 To Investment in Sarget Co. $ 200,000.00 Fixed Assets $ 50,000.00 Goodwill $ 75,000.00 To Investment in Sarget Co. $ 100,000.00 To Minority intt $ 25,000.00 Depreciation $ 5,000.00 To Accumulation of Dep $ 5,000.00 Parker Company and Sarget Company Conslidated income Statement Sales=($150000+$100000) $ 250,000.00 Expenses($110000+75000+5000) $ 190,000.00 Consolidated Net Income $ 60,000.00 Share of Minority=($100000-25000-5000)*20% $ 4,000.00 Distributed to controlling intt=($40000+($20000*80%)) $ 56,000.00 Sarget Company Income distribution Particular Amount Particular Amount Depreciation $ 5,000.00 Internally generated income($100000-$75000) $ 25,000.00 Minority Intt=($20000*20%) $ 4,000.00 Parent's Intt($20000*80%) $ 16,000.00 Parker Copany Income distribution Particular Amount Particular Amount Internally generated income($150000-$110000) $ 40,000.00 Share in Sarget's $ 16,000.00 Controlling Intt $ 56,000.00 Consolidated Retained Earning Statement Minority Intt Controlling Retained Earnings Retained Earnings 1/1/2015=($150000*20%) to Minority $ 30,000.00 $ 200,000.00 Income from Sarget Co.($300000-$250000) $ 50,000.00 Consolidated Net Income $ 4,000.00 $ 56,000.00 Retained Earnings 31/12/2015 $ 34,000.00 $ 306,000.00 Less: Dividend declared=($5000*20%) $ (1,000.00) Balance $ 33,000.00 Parker & Sarget Co. Consolidated Balance Sheet Current Assets=($60000+$130000) $ 190,000.00 Depreciable Fixed Assets($400000+$250000) $ 650,000.00 Less: Accumulated Depreciation=($106000+20000+5000) $ (131,000.00) $ 519,000.00 Goodwill $ 75,000.00 Total Assets $ 784,000.00 Current Liabilities=($60000+$40000) $ 100,000.00 Stock holder's Equity Common Stock $ 300,000.00 Retained Earnings $ 306,000.00 $ 606,000.00 Minority Intt=($75000+4000-1000) $ 78,000.00 $ 784,000.00
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.