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    5 - Assign - Pad & Sad Co.

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    Pinky Daisies
    Pad Company purchased 40,000 shares of Sad Company for $1,480,000 on January 1, YEAR 1. Sad Company had net assets of $1,600,000 at the time. During YEAR 3, Sad Company owed Pad Company $140,000 for purchases and Pad Company sold $1,000,000 of inventory to Sad Company. Financial statements are provided for both companies as of December 31, YEAR 3. Eliminating entries and a consolidated balance sheet and income statement are required.

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    5 - Assign - Pad & Sad Co.

    Uploaded by

    Pinky Daisies
    113 views2 pages
    Pad Company purchased 40,000 shares of Sad Company for $1,480,000 on January 1, YEAR 1. Sad Company had net assets of $1,600,000 at the time. During YEAR 3, Sad Company owed Pad Company $140,000 for purchases and Pad Company sold $1,000,000 of inventory to Sad Company. Financial statements are provided for both companies as of December 31, YEAR 3. Eliminating entries and a consolidated balance sheet and income statement are required.

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    Pad Company purchased 40,000 shares of Sad Company for $1,480,000 on January 1, YEAR 1. Sad Company had net assets of $1,600,000 at the time. During YEAR 3, Sad Company owed Pad Company $140,000 for purchases and Pad Company sold $1,000,000 of inventory to Sad Company. Financial statements are provided for both companies as of December 31, YEAR 3. Eliminating entries and a consolidated balance sheet and income statement are required.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    113 views2 pages

    5 - Assign - Pad & Sad Co.

    Uploaded by

    Pinky Daisies
    Pad Company purchased 40,000 shares of Sad Company for $1,480,000 on January 1, YEAR 1. Sad Company had net assets of $1,600,000 at the time. During YEAR 3, Sad Company owed Pad Company $140,000 for purchases and Pad Company sold $1,000,000 of inventory to Sad Company. Financial statements are provided for both companies as of December 31, YEAR 3. Eliminating entries and a consolidated balance sheet and income statement are required.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 2

    6 PAD & SAD COMPANY Downstream sale

    On January 1, YEAR 1, Pad Company purchased 40,000 shares of Sad Company's P 20 par ordinary shares in the open
    market for P 1,480,000.

    On that date, the net assets of Sad Company amounted to P 1,600,000. and had book values that approximated their
    market values.

    The excess is due to an equipment with a market value P 250,000 higher than its book value. It has a useful life of
    10 years from the acquisition date. Pad Company uses the cost method to account for its investment

    On December 31, YEAR 3, Sad Company owed Pad Company P 140,000 on open account from purchases made during 2008.

    The amount of the sales to Sad Company during YEAR 3 is P 1,000,000. Pad Company shipped merchandise to Sad Co.
    at its normal shipping price and had a cost of P 400,000. The entire ending inventory of Sad Co. was purchased from
    Pad Co. The beginning inventory of Sad Company included P 200,000 of inventory acquired from Pad Company at the
    same rate of profit.

    Financial statement for the two companies for the year ended December 31, YEAR 3 are as follows:

    A BALANCE SHEET PAD CO. SAD CO.


    Cash 600,000 400,000
    Accounts receivable 520,000 400,000
    Inventories 800,000 400,000
    Land 1,200,000
    Building-net 800,000
    Equipment-net 2,606,000 2,000,000
    Investment in SAD Company 1,480,000 0
    Total assets 8,006,000 3,200,000

    Accounts payable 604,000 360,000


    Bonds payable 196,000
    Ordinary shares 1,000,000 1,000,000
    Share premium 600,000
    Retained earnings 5,606,000 1,840,000
    Total liabilities & equity 8,006,000 3,200,000

    B INCOME STATEMENT
    Sales 4,000,000 2,000,000
    Cost of sales 1,600,000 1,200,000

    Gross income 2,400,000 800,000


    Dividend income 96,000 0

    Total income 2,496,000 800,000


    Operating expenses 1,560,000 560,000

    NET INCOME 936,000 240,000

    C RETAINED EARNINGS STATEMENT


    Retained earnings, Jan 1, YEAR 3 5,470,000 1,720,000
    Add: Net income 936,000 240,000
    6,406,000 1,960,000
    Less Dividends 800,000 120,000

    Retained earnings, Dec 31, YEAR 3 5,606,000 1,840,000

    REQUIRED:
    1. COMPUTATION OF COST/BOOK VALUE DIFFERENTIAL

    2. CONSOLIDATED NET INCOME


    3. ELIMINATION ENTRIES:

    4. WORKING PAPER

    ELIMINATIONS CONSOLI
    BALANCE SHEET PAD SAD DEBIT CREDIT BS
    Cash 600,000 400,000
    Accounts receivable 520,000 400,000
    Inventories 800,000 400,000
    Land 1,200,000
    Building 800,000
    Equipment 2,606,000 2,000,000
    INVESTMENT IN SAD 1,480,000 0

    Total assets 8,006,000 3,200,000

    Accounts payable 604,000 360,000


    Bonds payable 196,000
    Ordinary shares 1,000,000 1,000,000
    Share premium 600,000

    Retained earnings 5,606,000 1,840,000

    MINORITY INTEREST (MINAS)

    Total liabilities & equity 8,006,000 3,200,000

    INCOME STATEMENT
    Sales 4,000,000 2,000,000
    Cost of sales 1,600,000 1,200,000

    Gross income 2,400,000 800,000


    Dividend income 96,000 0

    Total income 2,496,000 800,000


    Operating expenses 1,560,000 560,000

    NET INCOME 936,000 240,000

    Minority Interest Net Income

    Consolidated Net Income

    RETAINED EARNINGS STATEMENT


    Retained earnings, Jan 1, Yr. 3 5,470,000 1,720,000
    Add: Net income 936,000 240,000
    6,406,000 1,960,000
    Less Dividends 800,000 120,000

    Retained earnings, Dec 31, Yr. 3 5,606,000 1,840,000

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