South Company acquires a 90% interest in West Company for $585,000 cash on January 1, 20X0, when West Company had the following balance sheet:

Assets Liabilities and Equity

Current assets $ 200,000 Current liabilities $100,000

Depreciable fixed assets (net) 400,000 Common Stock ($10 par) 200,000

Retained earnings 300,000

Total assets $ 600,000 Total liabilities & equity $600,000

The excess of the price paid over book value is attributable to the fixed assets, which have a fair value of $500,000, and to goodwill. The fixed assets have a 10-year remaining life. South Company uses the simple equity method to record its investment in West Company.

For the year ending December 31, 20X0, the following information for West Company is available:

West total net income: $50,000

West total dividends declared: $10,000

For the year ending December 31, 20X1, the following information for West Company is available:

Retained Earnings January 1, 20X1 $340,000

Total Net Income $ 30,000

Total Dividends Declared $ 20,000

Requirements:

Prepare the journal entries required on the books of South Company to record West’s 20X0 net income and dividends.
Prepare a determination and distribution of excess schedule for the investment in West Company.
Prepare all elimination and adjustment entries that would be required on the 20X0 consolidated worksheet.
Prepare the journal entries required on the books of South Company to record West’s 20X1 net income and dividends.
Prepare all elimination and adjustment entries that would be required on the 20X1 consolidated worksheet.

Answer rating: 100% (QA)

Answer 1 Prepare the journal entries required on the books of South Company to record Wests 20X0 net ... View the full answer