Comprehensive Review: Consolidation Entries — Cost Method and Conversion to Equity Method The following accounts are as they appear on the separate company financial statements of Pifo Inc. and its 100%-owned subsidiary, Sifo Inc. (created in 2001), at the end of 2006:

Pifo Inc. Sifo Inc.

Dividend income (from Sifo) .

Dividends receivable .

Investment in subsidiary .

Common Dividends stock payable Additional paid-in capital .

Retained Dividends earnings declared Additional information:

Reported net income (loss) for 2006

$ 14,000 7,000 200,000 30,000 50,000 450,000 330,000

(120,000)

$ 150,000

$ 7,000 30,000 170,000 51,000

(14,000)

$(23,000)

1 What consolidation entries, given these data, are required at the end of 2006?
2 What is the consolidated net income amount?
3 What did the parent earn from its own separate operations?
4 What is the consolidated retained earnings amount?
5 What amount is reported as dividends in the consolidated statement of retained earnings for 2006?
(Requirements 6, 7, and 8 can be assigned if both modules are covered.)
6 If Pifo used the equity method instead of the cost method, what would be its retained earnings balance at the end of 2006?
7 What general ledger entry would the parent make at 12/31/06 to convert to the equity method}
Guidance: First try to make the entry to convert the balance sheet only; then try the entry that converts all three financial statements.
8 If Pifo used the equity method instead of the cost method, what consolidation entries would it make at the end of 2006?