P Co acquires 80% of S for $900,000 cash on 1/1/2014. The only difference on that date between book and fair market value of net assets is related to a patent with a book value of $80,000 and a FMV of $100,000 (SGA item with a 10 year life). In 2014, S has net income of $100,000 and pays dividends of $5,000. In 2015 the amounts are $125,000(NI) and $10,000(Div). P paid no dividends in either year and had income of $300,000 and $500,000. At the date of acquisition, S’s total equity was $500,000 (CS 150,000 and RE 350,000)
1. Prepare ALL the journal entries (GL (Book)/consolidation) based on information above if P uses the equity method for Investment in S for both 2014 and 2015.
2. Prepare the journal entries to eliminate the investment account if P uses the cost method for both 2014 and 2015
3. Prepare in good form a consolidated net income statement and balance sheet for 2015 – assuming full equity method of accounting and assuming the following limited Trial Balance information of: P: Sales of $600K and COGS of $200K and SGA of $100K. S: sales of $400K, COGS $200K, and SGA of $75K. Do not ignore NCI
On 1/1/14 P purchases 80% of S for $720,000 Cash. S had equity of $500,000 (C/S $100K, APIC $150K, RE $250K), S's book value (BV) of assets were Inventory $75K, Land $150K, Building $600K and A/D-B $300K, Equip $150K and A/D-E $50K, Patent 125K. S's fair value (FV) of assets at date of acquisition: Inventory $80K, Land $200K, Bldg $500K, Equip $80K, Patent $150K.
S's liabilities were A/P, which had a BV and FV of $50,000 and miscellaneous payable BV $200,000 and a FV $186,760:
The inventory had a one year life, Bldg had a 20 year life, Equip had a 5 year life, Patent 10 year life, and the miscellaneous payable had a 4 year life.
4. Prepare elimination entry for IISC for year 1 (include NCI)
5. Prepare ONLY Journal entries for additional expenses recognized by the consolidation group for all FV adjustments
6. Powell Company owns an 80% interest in Sauter, Inc. On January 1, 20X1, Sauter issued $400,000 of 10-year, 12% bonds at a premium of $25,000. On December 31, 20X5, 5 years after original issuance, Powell purchased all of the outstanding bonds for $390,000. Both firms use the straight-line method of amortization, but you may opt to use effective rate method. Prepare all book (P and S company) entries and the consolidation entries for 2015.
7. P sold S inventory for $100K that cost P $80K to make in 2014. S sold that 40% of inventory in 2014 for $75K and sold the remaining inventory in 2015 for $90K. In 2015 P sold S inventory for $150K that cost P $120K to make. S sold 60% of that inventory in 2015 for $75K. Assuming full equity method prepare ALL book JEs for 2015 and consolidation entries for 2015.
8. (Two parts) fill in the blanks and preparation of income statements (5 points)
Pub, Co. Son, Co
Sales 500K 300K
COGS 250K 180K
GP 250K 120K
SGA 100K 80K
Net Income 150K 40K
Assume that Son Company paid $10K of dividend. Please prepare 3 Income Statements one which illustrates Pub owning 10% of Son’s stock; one which illustrates Pub owning 30%, and one that illustrates 80% ownership (assuming no adjustments to Son’s income, but do show NCI.)
A 10% ownership is generally considered to be a/an_________investment.
A 30% ownership is generally considered to be a/an _________investment
A 80% ownership is generally considered to be a/an_________investment
8B Prepare 3 formal income statements below.
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