Comprehensive Review: Consolidation Entries — Equity Method and Conversion to Cost Method The following accounts are as they appear on the separate company financial statements of Pufa Inc. and its 100%-owned subsidiary, Sufa Inc. (created in 2001), at the end of 2006:

Pufa Inc. Sufa Inc.

Equity in net loss of subsidiary Dividends receivable .

Investment in subsidiary .

Dividends payable .

Common stock .

Additional paid-in capital . . . .

Retained earnings .

Dividends declared .

Additional information:

Retained earnings at 1/1/06

$ (49,000)

660,000 6,000 20,000 300,000 $ 6,000 20,000 100,000 380,000 500,000 260,000

(80,000) (24,000)

$400,000 Required What consolidation entries, given these data, are required at the end of 2006?

What is the consolidated net income amount?

What did the parent earn from its own separate operations?

What is the consolidated retained earnings amount?

What amount is reported as dividends in the consolidated statement of retained earnings for 2006?

(Requirements 6, 7, and 8 can be assigned if both modules are covered.)

6 If Pufa used the cost method instead of the equity method, what would be its retained earnings balance at the end of 2006?

7 What general ledger entry would the parent make at 12/31/06 to convert to the cost method}

Guidance: First try to make the entry to convert the balance sheet only; then try the entry that converts all three financial statements.

8 If the parent used the cost method instead of the equity method, what consolidation entries would it make at the end of 2006?

Spreadsheet Integration Problem