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    Poblem and Solution

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    shaji
    Paper Company acquired 80% of Scissor Company for $296,000 on January 1, 20X8. The equity method was used to account for the investment. An entry was made to record Paper's share (80%) of Scissor's net income of $93,000 for the year, which amounted to $74,400. A consolidation worksheet combined the financial statements of both companies and included elimination entries to remove the intercompany investment account and reflect the non-controlling interest owned by outside shareholders.

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    Poblem and Solution

    Uploaded by

    shaji
    67 views8 pages
    Paper Company acquired 80% of Scissor Company for $296,000 on January 1, 20X8. The equity method was used to account for the investment. An entry was made to record Paper's share (80%) of Scissor's net income of $93,000 for the year, which amounted to $74,400. A consolidation worksheet combined the financial statements of both companies and included elimination entries to remove the intercompany investment account and reflect the non-controlling interest owned by outside shareholders.

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    Paper Company acquired 80% of Scissor Company for $296,000 on January 1, 20X8. The equity method was used to account for the investment. An entry was made to record Paper's share (80%) of Scissor's net income of $93,000 for the year, which amounted to $74,400. A consolidation worksheet combined the financial statements of both companies and included elimination entries to remove the intercompany investment account and reflect the non-controlling interest owned by outside shareholders.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    67 views8 pages

    Poblem and Solution

    Uploaded by

    shaji
    Paper Company acquired 80% of Scissor Company for $296,000 on January 1, 20X8. The equity method was used to account for the investment. An entry was made to record Paper's share (80%) of Scissor's net income of $93,000 for the year, which amounted to $74,400. A consolidation worksheet combined the financial statements of both companies and included elimination entries to remove the intercompany investment account and reflect the non-controlling interest owned by outside shareholders.

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    Question

    Paper Company acquired 80 percent of Scissor Company’s outstanding common stock for
    $296,000 on January 1, 20X8, when the book value of Scissor’s net assets was equal to $370,000.
    Paper uses the equity method to account for investments. Trial balance data for Paper and
    Scissor as of December 31, 20X8, are as follows:

    Paper Company Scissor Company


    Debit Credit Debit
    Cash $ 191,000 $ 46,000
    Accounts Receivable 140,000 60,000
    Inventory 190,000 120,000
    Investment in Scissor Company 350,400 0
    Land 250,000 125,000
    Buildings and Equipment 875,000 250,000
    Cost of Goods Sold 250,000 155,000
    Depreciation Expense 65,000 12,000
    Selling & Administrative Expense 280,000 50,000
    Dividends Declared 80,000 25,000
    Accumulated Depreciation $ 565,000
    Accounts Payable 77,000
    Bonds Payable 250,000
    Common Stock 625,000
    Retained Earnings 280,000
    Sales 800,000
    Income from Scissor Company 74,400
    Total $ 2,671,400 $ 2,671,400 $ 843,000
    Required:

    1. Prepare any equity method entry(ies) related to the investment in Scissor Company during
    20X8.
    2. Prepare a consolidation worksheet for 20X8. Assume the company prepares the optional
    Accumulated Depreciation Consolidation Entry.

    Answers
    Requirement - 1
    Journal Entry

    Journal Entry
    Account Title and
    Event Debit ($) Credit ($)
    Explanation

    1 Equity Investment 74400


    in Scissor Company

    To Income from 74400


    Scissor Company

    (Being Net Income


    distributed to
    Paper Company ($
    93000 * 80%
    (Working Note - 1)

    2 Cash 20000
    To Equity
    Investment in 20000
    Scissor

    (Being record
    dividend
    distribution made
    by Scissor
    Company to Paper
    company ($ 25000
    * 20%) (Working
    Note - 2)

    Working Note - 1

    Separate Income Statement - Scissor Company


    Description Scissor Company
    Sales 310000
    Less: Cost of goods sold -155000
    Gross Profit 155000
    Depreciation Expenses -12000
    Selling and Administrative Expenses -50000
    Net Income 93000

    Income Paid to Paper Company ($ 93000 * 80%) 74400

    Net Income in Non Control Interest  18600

    Working Note - 2

    Calculation of Dividend Income - Equity Method


    Description Amount ($)
    Dividend Declared by Scissor Company 25000
    Dividend Distribution to Paper Company ($
    25000*80%) 20000

    Requirement - 2
    Consolidation Worksheet

    Consolidation Worksheet
    For the Year 20x8
    Consolidation Elimination
    Description Paper Co. Scissor Co. Entries
    Debit ($)
    Income Statement
    Sales 800000 310000
    Less: Cost of Goods Sold -250000 -155000
    Gross Profit 550000 155000
    Less: Selling and Administrative Expenses -280000 -50000
    Less: Depreciation Expenses -65000 -12000
    Add: Income from Scissor Company 74400 74400
    Net Income 279400 93000 74400
    Net Income in Non Controlling Interest (NCI) - $
    18600
    93000 * 20%)

    Statement of Retained Earnings


    Beginning Retained Earnings 280000 120000 120000
    Net Income (Income Statement) 279400 93000 93000
    Less: Dividend -80000 -25000
    Ending Retained Earning  479400 188000 213000

    Statement of Financial Position


    Assets
    Current Asserts
    Cash 191000 46000
    Accounts Receivable 140000 60000
    Inventory 190000 120000
    Total Current Assets (A) 521000 226000
    Long term Assets
    Investment in Scissors Company 350400
    Land 250000 125000
    Building and Equipment 875000 250000
    Accumulated Depreciation -565000 -36000
    Total Long term Assets (B) 910400 339000
    Total Assets (A) + (B) 1431400 565000 0
    Liabilities and Shareholder's Equity
    Current Liabilities
    Accounts Payable 77000 27000
    Total Current Liabilities (A) 77000 27000
    Long term Liabilities
    Bond Payable 250000 100000
    Total Long term Liabilities (B) 250000 100000
    Stockholder's Equity
    Common Stock 625000 250000 250000
    Retained Earnings 479400 188000 213000
    Non Controlling Interest (NCI) (463000-350400-
    25000)
    Total Shareholders Equity ( C)  1104400 438000 463000
    Total Liabilities and Shareholder's Equity 1431400 565000 463000

    Elimination Journal Entry

    Journal Entry

    Event Account Title and Debit ($) Credit ($)


    Explanation
    1 Common Stock 250000

    Retained Earnings 213000

    To Dividend 25000
    To Investment in
    350400
    Scissor Company

    To Non Controlling
    Interest (Scissor 87600
    Co.)

    (Being record
    consolidation
    elimination entry)
    common stock for
    as equal to $370,000.
    data for Paper and

    Scissor Company
    Credit

    $ 36,000
    27,000
    100,000
    250,000
    120,000
    310,000
    0
    $ 843,000

    or Company during
    pares the optional
    onsolidation Elimination Total
    Entries Consolida
    Credit ($) tion

    1110000
    -405000
    705000
    -330000
    -77000
    0
    298000

    280000
    279400
    25000 -80000
    25000 479400
    237000
    200000
    310000
    747000

    350400 0
    375000
    1125000
    -601000
    899000
    350400 1646000

    104000
    104000

    350000
    350000

    625000
    25000 479400

    87600 87600

    463000 1192000
    463000 1646000

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