The trial balance data presented in P8–24 can be converted to reflect use of the cost method by inserting the following amounts in place of those presented for Patio Corporation:

Stone reported retained earnings of $25,000 on the date Patio purchased 60 percent of the stock.

Required

a. Prepare the journal entries that would have been recorded on Patio’s books during 20X4 under the cost method.

b. Prepare all consolidation entries needed to complete a consolidation worksheet as of December 31, 20X4, assuming Patio uses the cost method.

c. Complete a three-part consolidation worksheet as of December 31, 20X4.

Data from Exercises 24

Patio Corporation owns 60 percent of the stock of Stone Container Company, which it acquired at book value in 20X1. At that date, the fair value of the noncontrolling interest was equal to 40 percent of Stone’s book value. On December 31, 20X3, Patio purchased $100,000 par value bonds of Stone for $107,000. Stone originally issued the 10-year bonds at par value on January 1, 20X1. The bonds’ coupon rate is 9 percent. Interest is paid semiannually on June 30 and December 31. Trial balances for the two companies on December 31, 20X4, are as follows:

All interest income recognized by Patio is related to its investment in Stone bonds.

Transcribed Image Text:

Investment in Stone Container Corp. Stock $75,000 Retained Earnings 187,200 Income from Subsidiary Dividend Income 0 6,000