VANCED ACCOUNTING UNIT 3 POST PROBLEM 1

1. Following are trial balances of P and S Company as of December 31, 200X.

(Prior to the payment of dividends and recording S income using the equity method of accounting).

P Company S Company

Cash $607,000 $ 73,000

Inventories 138,000 40,000

Other Assets 60,000

Investment in S 345,000

Plant Assets 330,000 160,000

Current Liabilities (120,000) (100,000)

Common Stock $5PV (100,000)

Common Stock $10 PV (40,000)

Additional Paid in Capital (200,000) (20,000)

Retained Earnings (620,000) (60,000)

Sales (860,000) (120,000)

Cost of Goods Sold 300,000 42,000

Operating expenses 120,000 25,000

Other information:

Differences between identifiable net assets of S Company on THE DATE OF THE ACQUISITION of S Company By P Company were:

Fair Value Book Value Difference

Plant 250,000 140,000 110,000 20 year life

On January 1, 200X P Co. purchased S Co. for $345,000. Goodwill created on date of purchase was $115,000.

On December 31, 200X S paid $20,000 in dividends.

1. Show journal entries for the payment of dividends by S and Ps recording of Ss net income using the equity method of accounting.

2. Prepare consolidation worksheet.

3. Prepare consolidated financial statements for the year ending December 31, 200X.

	P CO AND SUBSIDIARY
	Working Paper for Consolidated Balance Sheet
	12/31/200X
		P	S
		Company	Company	Debit	Credit	Consolidated
	Income Statement:
	Revenue
	Net sales
	Equity in Sub Income
	Total revenue		120,000
	Expenses
	Cost of goods sold
	Operating expenses
	Total expense
	Net income	487,500	53,000
	Statement Retained Earn:
	Beginning Retained Earn
	Net income
	Dividends
	End Retained Earnings
	Balance Sheet:
	Assets
	Cash
	Inventories
	Other assets
	Investment in S Co.
	Plant
	Goodwill					115,000
	Total Assets
	Liabilities & Equity
	Liabilities
	Common Stock $10 par
	Common Stock $ 5 par
	Paid In Capital
	Retained Earnings
	Total Liabilities & Equity
	1. Entry S - Eliminate Subsidiary Equity (beginning retained earnings)
	2. Entry A - Allocate subsidiary acquisition date fair value adjustments
	3. Entry I - Eliminate Equity in Subsidiary Earnings
	4. Entry D - Eliminate the dividends paid to the parent by the subsidiary
	5. Adjust income/expense accounts because of fair market value adjustments