Problem 3-2 – Equity method adjustments, consolidated


Question Description:

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Problem 3-2 – Equity method adjustments, consolidated worksheet. On Jan. 1, 20X1, Peres Company purchased 80% of the common stock of Soll Company for $308,000. On this date, Soll had common stock, other paid-in-capital, and retained earnings of $50,000, $100,000, and $150,000, repectively. Net income and dividends for the two year for Soll Comp. were as follows: 20X1 20X2 Net Income………………………$60,000 $90,000 Dividends…………………………$20,000 $30,000 On Jan. 1, 20X1, the only tangible assets of Soll that were undervalued were inventory and the building. Inventory, for which FIFO is used, was worth $10,000 more than cost. The inventory was sold in 20X1. The building, which is worth $25,000 more than book value, has a remaining life of 10 years, and straight-line depreciation is used. The remaining excess of cost over book value is attributable to goodwill. 1. Using this information or the information in the following trial balances, prepare a determination and distribution of excess schedule. 2. Peres Company carries the investment in Soll Comp. under the simple equity method. In general journal form, record the entries that would be made to apply the equity method in 20X1 and 20X2 3. Compute the balance that should appear in Investment in Soll Comp. and in Soll Income on Dec. 31, 20X2 (second year). Fill in these amounts on Peres Comp. trial balance for 20X2. 4. Complete a worksheet for consolidated financial statements for 20X2. Include columns for eliminations and adjustments, consolidated income, NCI, controlling retained earnings, and balance sheets. Peres Comp Soll Comp Inventory, Dec. 31…………………………………………..100,000 50,000 Other Current Assets………………………………………148,000 180,000 Investment in Soll Comp………………………………….Note 1 Land……………………………………………………………….50,000 50,000 Buildings and Equipment………………………………..350,000 320,000 Accumulated Depreciation………………………………(100,000) (60,000) Goodwill Other Intangibles……………………………………………20,000 Current Liabilities……………………………………………(120,000) (40,000) Bonds Payable……………………………………………….. (100,000) Other long-term Liabilities………………………………(200,000) Common Stock, P Comp………………………………….(200,000) Other Paid-in Capital P Comp………………………….(100,000) Retained Earnings, P Comp……………………………..(214,000) Common Stock, S Comp…………………………………. (50,000) Other Paid-in Capital S Cmp………………………….. (100,000) Retained Earnings, C Cmp……………………………… (190,000) Net Sales……………………………………………………….(520,000) (450,000) Cost of Goods Sold………………………………………..300,000 260,000 Operating expenses……………………………………….120,000 100,000 Soll Income……………………………………………………. Note 1 Dividends Declared, P Comp………………………….. 50,000 Dividends Declared, S Comp………………………….. 30,000 Note 1: To be calculated. Attached is the worksheet for Problem 3-2 lsomers_Week03Problems_042414.xls Prob 3-2 D&D A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 Problem 3-2 1 Common Information Ownership interest Price paid (including direct acquisition costs) Year of consolidation (1 = year of purchase) B C D E F G H Book Value Market Value Life Equity Method 80.00% 308,000 2 Acquired company’s balance sheet before purchase Book Value Mark

Answer

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