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    Complete Equity Method Workpaper Entries - Year 2010

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    jeankopler
    - The document contains journal entries for Porter Company's equity method investments in Salem Company for 2010 and 2011. - It allocates the difference between the implied value and book value of Salem Company's net assets between land, equipment, goodwill, and noncontrolling interest. - It provides income statements, balance sheets, and retained earnings statements on a consolidated basis for Porter Company and Salem Company for 2012 that eliminate intercompany transactions and accounts.

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    Complete Equity Method Workpaper Entries - Year 2010

    Uploaded by

    jeankopler
    29 views14 pages
    - The document contains journal entries for Porter Company's equity method investments in Salem Company for 2010 and 2011. - It allocates the difference between the implied value and book value of Salem Company's net assets between land, equipment, goodwill, and noncontrolling interest. - It provides income statements, balance sheets, and retained earnings statements on a consolidated basis for Porter Company and Salem Company for 2012 that eliminate intercompany transactions and accounts.

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    - The document contains journal entries for Porter Company's equity method investments in Salem Company for 2010 and 2011. - It allocates the difference between the implied value and book value of Salem Company's net assets between land, equipment, goodwill, and noncontrolling interest. - It provides income statements, balance sheets, and retained earnings statements on a consolidated basis for Porter Company and Salem Company for 2012 that eliminate intercompany transactions and accounts.

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    © All Rights Reserved
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    Download as doc, pdf, or txt
    29 views14 pages

    Complete Equity Method Workpaper Entries - Year 2010

    Uploaded by

    jeankopler
    - The document contains journal entries for Porter Company's equity method investments in Salem Company for 2010 and 2011. - It allocates the difference between the implied value and book value of Salem Company's net assets between land, equipment, goodwill, and noncontrolling interest. - It provides income statements, balance sheets, and retained earnings statements on a consolidated basis for Porter Company and Salem Company for 2012 that eliminate intercompany transactions and accounts.

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    © All Rights Reserved
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    To eliminate intercompany dividends and income

    (2) Beginning Retained Earnings - Salem Co.


    Common Stock - Salem
    Difference between Implied and Book Value
    Investment in Salem Company ($850,000 + $80,000 $20,000)
    Noncontrolling Interest ($212,500 + ($155,000 $80,000).2)
    To eliminate investment account and create noncontrolling interest account

    155,000
    550,000
    432,500

    (3) 1/1 Retained Earnings Porter Company


    Noncontrolling Interest
    Land
    Plant and Equipment (5 year life)
    Goodwill
    Difference between Implied and Book Value
    To allocate the difference between implied and book value

    32,000
    8,000
    65,000
    130,000
    197,500

    (4) 1/1 Retained Earnings Porter Company (previous years amount)


    Noncontrolling Interest
    Depreciation Expense ($130,000/5)
    Plant and Equipment
    Complete Equity Method Workpaper entries Year 2010
    (1) Equity in Subsidiary Income ($100,000)(.80) $32,000 $20,800
    Dividends Declared ($25,000.80)
    Investment in Salem Company
    To eliminate intercompany dividends
    (2) Beginning Retained Earnings - Salem Co.
    Common Stock - Salem
    Difference between Implied and Book Value
    Investment in Salem Company
    Noncontrolling Interest
    To eliminate investment account and create noncontrolling interest account

    910,000
    227,500

    432,500
    20,800
    5,200
    26,000
    52,000

    27,200
    20,000
    7,200
    80,000
    550,000
    432,500
    850,000
    212,500

    (3) Cost of Goods Sold


    Land
    Plant and Equipment (5 year life)
    Goodwill
    Difference between Implied and Book Value
    To allocate the difference between implied and book value
    (4) Depreciation Expense ($130,000/5)
    Plant and Equipment

    40,000
    65,000
    130,000
    197,500
    432,500

    26,000
    26,000

    Complete Equity Method Worksheet Entries Year 2011


    (1) Equity in Subsidiary Income ($110,000)(.80) - $20,800
    Dividends Declared ($35,000.80)
    Investment in Salem Company
    To eliminate intercompany dividends and income

    67,200
    28,000
    39,200

    (2) Beginning Retained Earnings - Salem Co. ($80,000 + $75,000)


    Common Stock - Salem
    Difference between Implied and Book Value
    Investment in Salem Company ($850,000 + $80,000 $20,000)
    Noncontrolling Interest ($212,500 + ($155,000 $80,000).2)
    To eliminate investment account and create noncontrolling interest account

    155,000
    550,000
    432,500

    (3) Investment in Salem Company


    Noncontrolling Interest
    Land
    Plant and Equipment (5 year life)
    Goodwill
    Difference between Implied and Book Value
    To allocate the difference between implied and book value

    32,000
    8,000
    65,000
    130,000
    197,500

    910,000
    227,500

    432,500

    (4) Investment in Salem Company


    Noncontrolling Interest
    Depreciation Expense ($130,000/5)
    Plant and Equipment

    20,800
    5,200
    26,000
    52,000

    Part D

    Porter
    Company

    Income Statement
    Sales
    Dividend Income
    Total Revenue
    Cost of Goods Sold
    Depreciation Expense
    Impairment loss
    Other Expenses
    Total Cost and Expense
    Net/Consolidated Income

    Salem
    Company

    $1,100,000 $450,000
    48,000
    (2)
    1,148,000 450,000
    900,000 200,000
    40,000
    30,000 (4b)
    (5)
    60,000
    50,000
    1,000,000 280,000
    148,000 170,000

    Noncontrolling Interest in Consolid. Income*


    Net Income to Retained Earnings

    $148,000 $170,000

    Retained Earnings Statement


    1/1 Retained Earnings:
    Porter Company

    $500,000

    Salem Company
    Net Income from Above
    Dividends Declared:
    Porter Company
    Salem Company
    12/31 Retained Earnings to Balance Sheet

    Eliminations
    Debit
    Credit

    148,000

    Noncontrolling Consolidated
    Interest
    Balances
    $1,550,000

    48,000
    1,550,000
    1,100,000
    96,000
    47,500
    110,000
    1,353,500
    196,500

    26,000
    47,500

    19,300
    $19,300

    $121,500

    (4a)
    (4b)

    32,000
    41,600

    (1) $120,000

    230,000 (3) 230,000


    170,000
    121,500

    $546,400

    19,300

    (90,000)
    (60,000)
    $558,000 $340,000
    Porter

    Salem

    (19,300)
    $177,200

    177,200
    (90,000)

    (2)
    $425,100
    Eliminations

    48,000
    $168,000

    (12,000)
    $7,300

    $633,600

    Noncontrolling Consolidated

    Balance Sheet
    Company Company
    Cash
    $70,000
    $65,000
    Accounts Receivable
    260,000
    190,000
    Inventory
    240,000
    175,000
    Investment in Salem Company
    850,000
    (1)
    Difference between Implied and Book Value
    (3)
    Land
    320,000 (4a)
    Plant and Equipment
    360,000
    280,000 (4a)
    Goodwill
    (4a)
    Total Assets
    $1,780,000 $1,030,000

    Debit

    120,000 (3)
    432,500 (4a)
    65,000
    130,000 (4b)
    197,500 (5)

    Credit

    Interest

    Balances
    $135,000
    $450,000
    $415,000

    970,000
    432,500
    385,000
    692,000
    150,000
    $2,227,000

    78,000
    47,500

    Accounts Payable
    $132,000 $110,000
    Notes Payable
    90,000
    30,000
    Common Stock:
    Porter Company
    1,000,000
    Salem Company
    550,000 (3) 550,000
    Retained Earnings from above
    558,000
    340,000
    425,100
    168,000
    1/1 Noncontrolling Interest in Net
    (4a)
    8,000 (3) 242,500 **
    Assets
    (4b)
    10,400
    12/31 Noncontrolling Interest in Net
    Assets
    Total Liabilities and Equity
    $1,780,000 $1,030,000
    $1,938,500
    $1,938,500
    * Noncontrolling Interest in Income =.2 $170,000 (.2 x $26,000) (.2 x $47,500) = $19,300
    ** $212,500 + ($230,000 $80,000) x .20 = $242,500
    Explanations of workpaper entries are on the following page.

    $242,000
    120,000
    1,000,000
    7,300
    224,100

    633,600

    $231,400

    231,400
    $2,227,000

    Computation and Allocation of Difference Schedule


    Parent
    Share
    Purchase price and implied value
    Less: Book value of equity acquired
    Difference between implied and book value
    Equipment
    Land
    Inventory
    Balance
    Goodwill
    Balance

    $850,000
    504,000
    346,000
    (104,000)
    (52,000)
    (32,000)
    158,000
    (158,000)
    -0-

    NonControlling
    Share
    212,500
    126,000
    86,500
    (26,000)
    (13,000)
    (8,000)
    39,500
    (39,500)
    -0-

    Entire
    Value
    1,062,500
    630,000
    432,500
    (130,000)
    (65,000)
    (40,000)
    197,500
    (197,500)
    -0-

    Explanations of Workpaper entries:


    (1) Investment in Salem Company [.80 ($230,000 - $80,000)]
    Beginning Retained Earnings - Porter Co.
    To establish reciprocity/convert to equity method as of 1/1/12
    (2) Dividend Income ($60,000.80)
    Dividends Declared
    To eliminate intercompany dividends

    120,000
    120,000
    48,000
    48,000

    (3) Beginning Retained Earnings - Salem Co.


    Common Stock - Salem
    Difference between Implied and Book Value
    Investment in Salem Company ($850,000 + $120,000)
    Noncontrolling Interest
    To eliminate the investment account and create noncontrolling interest account

    55

    230,000
    550,000
    432,500
    970,000
    242,500

    (4a) Beginning Retained Earnings- Porter Company


    Noncontrolling Interest
    Land
    Plant and Equipment
    Goodwill
    Difference between Implied and Book Value

    32,000
    8,000
    65,000
    130,000
    197,500
    432,500

    (4b) Beginning Retained Earnings - Porter Company (two years)


    Noncontrolling Interest (two years)
    Depreciation Expense
    Plant and Equipment

    41,600
    10,400
    26,000
    78,000

    Alternative to entries (4a) and (4b)


    (4) Beginning Retained Earnings - Porter Company a
    Noncontrolling Interest b
    Depreciation Expense
    Land
    Plant and Equipment c
    Goodwill
    Difference between Implied and Book Value
    To allocate and depreciate the difference between implied and book value
    a
    ($32,000 + $20,800) + ($20,800) = $73,600
    b
    ($8,000 + $5,200) + ($5,200) = $18,400
    c
    ($130,000 - [3$26,000]) = $52,000
    (5) Impairment Loss ($197,500 - $150,000)
    Goodwill
    To record goodwill impairment

    73,600
    18,400
    26,000
    65,000
    52,000
    197,500
    432,500

    47,500
    47,500

    56

    Part E

    PORTER COMPANY AND SUBSIDIARY


    Consolidated Financial Statements
    For the Year Ended December 31, 2012
    Consolidated Income Statement
    Sales
    Cost of Goods Sold
    Gross Profit
    Expenses:
    Depreciation Expense
    Impairment Loss
    Other Expenses
    Consolidated Income
    Noncontrolling Interest in Consolidated Income
    Net Income

    $1,550,000
    1,100,000
    450,000
    $96,000
    47,500
    110,000

    Consolidated Statement of Retained Earnings


    Retained Earnings - Beginning of Year
    Add: Net Income
    Less Dividends
    Retained Earnings - End of Year

    253,500
    196,500
    19,300
    $177,200
    $546,400
    177,200
    90,000
    $633,600

    PORTER COMPANY AND SUBSIDIARY


    Consolidated Statement of Financial Position
    December 31, 2012
    Assets
    Current Assets:
    Cash
    Accounts Receivable
    Inventory
    Noncurrent Assets:
    Plant and Equipment (net)

    $135,000
    450,000
    415,000
    692,000

    57

    $1,000,000

    723,600

    Land
    Goodwill
    Total Assets

    385,000
    150,000

    Liabilities And Stockholders' Equity


    Liabilities:
    Accounts Payable
    Notes Payable
    Total Liabilities
    Stockholders' Equity
    Noncontrolling Interest in Net Assets
    Capital Stock
    Retained Earnings
    Total Liabilities and Stockholders' Equity

    1,227,000
    $2,227,000

    $242,000
    120,000
    362,000
    231,400
    1,000,000
    633,600

    1,865,000
    $2,227,000

    Part F Ending inventory would be higher by $40,000 if LIFO is assumed because it would not have been sold. Beginning controlling
    retained earnings and noncontrolling interest would also be $32,000 and $8,000 higher, because cost of goods sold in the year
    of acquisition was lower.
    Part G Porter Company's Retained Earnings on 12/31/12
    Porter Company's Share of the Increase in Salem
    Company's Retained Earnings from January 1, 2010 to December 31, 2012
    ($340,000 $80,000).8
    Cumulative Effect to December 31, 2012 of the Allocation and Depreciation
    of the Difference between Implied and Book value (Parents share)
    Allocated to:
    2010
    2011
    2012
    Inventory
    $32,000
    $0
    $0
    Equipment
    20,800
    20,800
    20,800
    $52,800 $20,800 $20,800
    Goodwill Impairment (2012)

    58

    $558,000
    208,000

    (94,400)
    (38,000)

    Controlling Interest in Consolidated Retained Earnings on 12/31/12

    $633,600

    P5-6)
    Computation and Allocation of Difference Schedule
    Parent
    Share
    Purchase price and implied value
    Less: Book value of equity acquired
    Difference between implied and book value
    Equipment*
    Less:Accumulated Depreciation*
    Balance
    Goodwill
    Balance

    $400,000
    255,000
    145,000
    (76,500)
    25,500
    94,000
    (94,000)
    -0-

    NonControlling
    Share
    70,588
    45,000
    25,588
    (13,500)
    4,500
    16,588
    (16,588)
    -0-

    Entire
    Value
    470,588 *
    300,000
    170,588
    (90,000)
    30,000
    110,588
    (110,588)
    -0-

    *$400,000/.85
    *Schedule of Book Value and Fair Value on Date of Acquisition

    Equipment
    Accumulated Depreciation
    Equipment (net)

    Fair
    Value
    $450,000 1
    150,000 2
    $300,000

    Book
    Value
    $360,000
    120,000
    $240,000

    Fair Value
    Minus Book Value
    $90,000 3
    30,000 4
    $60,000

    $300,000/($240/$360) = $450,000
    $450,000($120/$360) = $150,000

    59

    $60,000/($240/$360) = $90,000
    $90,000($120/$360) = $30,000

    Allocation of Difference between Implied and Book Value


    Equipment (net)
    Goodwill
    Difference between Implied and Book Value

    Annual
    Amount
    Amortization
    $60,000/6 yr $10,000
    110,588
    0
    $170,588
    $10,000

    Part A
    Part 1 Cost Method
    (1) Dividend Income ($30,0000.85)
    Dividends Declared

    25,500
    25,500

    (2) Beginning Retained Earnings - Silvas Company


    Common Stock - Silvas Company
    Difference between Implied and Book Value
    Investment in Silvas Company
    Noncontrolling Interest

    210,000
    90,000
    170,588

    (3) Depreciation Expense


    Equipment
    Goodwill
    Accumulated Depreciation - Equipment ($30,000 + $10,000)
    Difference between Implied and Book Value

    10,000
    90,000
    110,588

    400,000
    70,588

    Alternative to entry (3)


    (3a) Equipment
    Goodwill
    Accumulated Depreciation - Equipment

    40,000
    170,588
    90,000
    110,588
    30,000

    5 10

    Difference between Implied and Book Value

    170,588

    Depreciation Expense
    Accumulated Depreciation - Equipment

    10,000
    10,000

    Part 2 Partial Equity Method


    (1) Equity in Subsidiary Income ($40,0000.85)
    Dividends Declared ($30,0000.85)
    Investment in Silvas Company
    To eliminate intercompany dividends and income

    34,000
    25,500
    8,500

    (2) Beginning Retained Earnings - Silvas Company


    Common Stock - Silvas Company
    Difference between Implied and Book Value
    Investment in Silvas Company
    Noncontrolling Interest

    210,000
    90,000
    170,588

    (3) Depreciation Expense


    Equipment
    Goodwill
    Accumulated Depreciation - Equipment ($30,000 + $10,000)
    Difference between Implied and Book Value

    10,000
    90,000
    110,588

    400,000
    70,588

    Alternative to entry (3)


    (3a) Equipment
    Goodwill
    Accumulated Depreciation - Equipment
    Difference between Implied and Book Value

    40,000
    170,588
    90,000
    110,588
    30,000
    170,588

    5 11

    (3b) Depreciation Expense


    Accumulated Depreciation - Equipment

    10,000
    10,000

    Part B
    Part 1 Cost Method
    Cost
    Accumulated Depreciation
    Undepreciated Basis
    Sales Proceeds
    Gain (Loss)

    Silvas Company
    $360,000
    160,000
    200,000
    220,000
    $ 20,000

    (1) Investment in Silvas Company ($10,0000.85)


    Beginning Retained Earnings - Perini Company
    To establish reciprocity/convert to equity as of 1/1/2012
    (2) Dividend Income ($30,0000.85)
    Dividends Declared-Silvas Company
    To eliminate intercompany dividends

    Difference
    $90,000
    40,000
    50,000
    $50,000

    Consolidated
    $450,000
    200,000
    250,000
    220,000
    $(30,000)
    8,500
    8,500
    25,500
    25,500

    (3) Beginning Retained Earnings-Silvas Co.


    220,000
    Common Stock -Silvas Company
    90,000
    Difference between Implied and Book Value
    170,588
    Investment in Silvas Company ($400,000 + $8,500)
    408,500
    Noncontrolling Interest ($70,588 + ($220,000 $210,000) x .15)
    72,088
    To eliminate investment account and create noncontrolling interest account
    (4) Beginning Retained Earnings-Perini Company

    8,500

    5 12

    Noncontrolling Interest
    Gain on Disposal of Equipment
    Loss on Disposal of Equipment
    Goodwill
    Difference between Implied and Book Value
    To allocate and depreciate difference between Implied and book value

    1,500
    20,000
    30,000
    110,588

    Note: $20,000 Dr. to Gain + $30,000 Dr. to Loss =


    Unamortized difference associated with equipment on date sold to
    outsiders equals $60,000 - $10,000 =

    $50,000

    170,588

    $50,000

    Part B
    Part 2 Partial Equity Method
    Cost
    Accumulated Depreciation
    Undepreciated Basis
    Sales Proceeds
    Gain (Loss)

    Silvas Company
    $360,000
    160,000
    200,000
    220,000
    $20,000

    Difference
    $90,000
    40,000
    50,000
    $50,000

    Consolidated
    $450,000
    200,000
    250,000
    220,000
    $(30,000)

    (1) Equity in Subsidiary Income ($40,0000.85)


    Investment in Silvas Company
    To eliminate intercompany dividends and income

    34,000

    (2) Investment in Silvas Company


    Dividends Declared-Silvas Company ($30,0000.85)
    To eliminate intercompany dividends

    25,500

    34,000

    (3) Beginning Retained Earnings-Silvas Co.


    Common Stock -Silvas Company

    25,500
    220,000
    90,000

    5 13

    Difference between Implied and Book Value


    170,588
    Investment in Silvas Company ($400,000 + $8,500)
    408,500
    Noncontrolling Interest ($70,588 + ($220,000 $210,000) x .15)
    72,088
    To eliminate investment account and create noncontrolling interest account
    (4)

    Beginning Retained Earnings-Perini Company


    Noncontrolling Interest
    Gain on Disposal of Equipment
    Loss on Disposal of Equipment
    Goodwill
    Difference between Implied and Book Value
    To allocate and depreciate difference between implied and book value

    8,500
    1,500
    20,000
    30,000
    110,588

    Note: $20,000 Dr. to Gain + $30,000 Dr. to Loss =


    Unamortized difference associated with equipment on date sold to
    outsiders equals $60,000 - $10,000 =

    $50,000

    5 14

    170,588

    $50,000

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