9621-5-3P

AID: 1150 | 30/08/2013

A)
Journal entries on the books of P Company to account for its investment in S Company
for 2012 and 2013 can be prepared as follows:
S.No. Account Title and Explanation

Debit($)

2012
1)
Investment in S Company
Cash
(To record purchase of 80% interest in
S Company)
2)

3)

4)

1,970,000.00
1,970,000.00

Cash(0.8$150,000)
Investment in S Company
(To record dividends received)

120,000.00

Equity in Subsidiary Income

Investment in S Company
(To adjust equity in subsidiary income)

600,000.00

Investment in S Company
Equity in Subsidiary Income
(To record equity in susbidiary income)

80,000.00

120,000.00

600,000.00

80,000.00

2013
1)
Cash(0.8$225,000)
Investment in S Company
(To record dividends received)
2)

3)

Credit($)

180,000.00
180,000.00

Investment in S Company
Equity in Subsidiary Income (.80) ($900,000)
(To record equity in susbidiary income)

720,000.00
720,000.00

Equity in Subsidiary Income

Investment in S Company
(To adjust equity in subsidiary income)

60,000.00
60,000.00

Computation and allocation of difference between implied and book value acquired is as
follows:
Particulars
Purchased price and implied value
*1,970,000/.80
Less: Book value of equity acquired:
Difference beween implied and book value
Inventory($725,000-$600,000)
Equipment($1,075,000-$900,000)
Balance
Goodwill
Balance

Parent Share
$ 1,970,000.00

Noncontrolling share
Entire value
$

492,500.00

2,462,500*

$ (1,440,000.00) $ (360,000.00) $ (1,800,000.00)

$
530,000.00 $ 132,500.00 $
662,500.00
$ (100,000.00) $ (25,000.00) $
(125,000.00)
$ (140,000.00) $ (35,000.00) $
(175,000.00)
$
290,000.00 $
72,500.00 $
362,500.00
$ (290,000.00) $ (72,500.00) $
(362,500.00)
$
$
$
-

Amortization schedule for year 2012 and 2013 can be prepared as follows:
Particulars

Parent Share

Noncontrolling share
Entire value

2012 Amortization Schedule

Inventory(60% in 2012)
Equipment($175,000/7)
Total

$
$
$

60,000.00
20,000.00
80,000.00

$
$
$

15,000.00
5,000.00
20,000.00

$
$
$

75,000.00
25,000.00
100,000.00

2013 Amortization Schedule

Inventory(40% in 2013)
Equipment($175,000/7)
Total

$
$
$

40,000.00
20,000.00
60,000.00

$
$
$

10,000.00
5,000.00
15,000.00

$
$
$

50,000.00
25,000.00
75,000.00

B)
Journal entries required in the consolidated statements workpapers for the years ended
December 31, 2012 and December 31, 2013 are as follows:

S.No. Account Title and Explanation

Debit($)
Credit($)
2012
1)
Equity in Subsidiary Income((.80) ($750,000)-$80,000)520,000.00
Dividends Declared (0.80$150,000)
120,000.00
Investment in S Co.
400,000.00
(To eliminate intercompany dividends and income)
2)

3)

Beginning Retained Earnings-S Company

Common Stock-S Company
Difference between Implied and Book value
Investment in S Company
Noncontrolling Interest
(To eliminate investment account and create
noncontrolling interest account)
Inventory($125,000-$75,000)
Cost of Goods Sold
Depreciation Expense
Equipment (net) ($175,000-$25,000)
Goodwill
Difference between Implied and Book Value)
(To allocate and amortize the difference Implied
and book value)

600,000.00
1,200,000.00
662,500.00
1,970,000.00
492,500.00

50,000.00
75,000.00
25,000.00
150,000.00
362,500.00
662,500.00

2013
1)
Equity in Subsidiary Income((.80) ($900,000)-$60,000)660,000.00
Dividends Declared (0.80$225,000)
Investment in S Co.
(To eliminate intercompany dividends and income)
2)

3)

Beginning Retained Earnings-S Company

Common Stock-S Company
Difference between Implied and Book value
Investment in S Company
($1,970,000+$480,000)
Noncontrolling Interest
($492,500+($1,200,000-$600,000).20)
(To eliminate investment account and create
noncontrolling interest account)
Investment in S Company
($60,000+$20,000)
Noncontrolling Interest($15,000+$5,000)
Cost of Goods Sold
Equipment (net)
($175,000-$25,000-$25,000)
Goodwill
Difference between Implied and Book Value
(To allocate and amortize the difference implied
and book value)

180,000.00
480,000.00

1,200,000.00
1,200,000.00
662,500.00
2,450,000.00
612,500.00

80,000.00
20,000.00
50,000.00
25,000.00
125,000.00
362,500.00
662,500.00

C)
Controlling interest in consolidated net income for 2013 can be calculated as follows:
Particulars
P Corportion's Net Income from Independent Operations
($1,000,000-$120,000)
P Corportion's Share of S Company's net income
(0.8$750,000)
Less: Assignment, amortization, and depreciation of:
Inventory
Equipment
Consolidated Interest in Consolidated Net Income

Amounts
$

880,000.00

600,000.00

$
(60,000.00)
$
(20,000.00)
$ 1,400,000.00