1 Practice Problem On January 1, 2014 Plant Company purchased 80% of the common stock of Sun Company for $775,000. Sun reported the following: Income Dividends 2014 $350,000 $45,000 2015 $360,000 $55.000 2016 $325,000 $65,000 9 On December 31, 2013,just prior to the acquisition, the balance sheets of Plant Company and Sun Company were as follows: 13 Cash 14 Accounts receivable (net) 15 Inventory 16 Land Plant $1,650,000 400,000 600,000 900.000 $3,550,000 (Book) $515,000 190,000 125,000 100.000 $930,000 Sun (Market $515,000 190,000 125.000 150.000 $980.000 $230,000 No amortization required 19 Liabilities 20 Common stock 21 Additional paid in capital 22 Retained earnings $0 500,000 250,000 2,800,000 $3,550.000 $200,000 300.000 100.000 330,000 $930,000 25 Required: 1. Assume that Plant accounts for the acquisition using the Equity method. Use the information above as well as the incomplete worksheet information presented on the following pages to consolidate the financial statements for plant and Sun for 2014, 2015 & 2016 in working the consolidations, please provide the following information: 1. The Equity method entries that Plant would make each year 2. The Allocation Schedule to allocate excess fair values 3. The consolidation entries 4. The Completed worksheets showing the consolidated totals 2. Assume that Plant accounts for the acquisition using the initial Value method (ie, the cost method). Use the information above as well as the appropriate Incomplete worksheet information to consolidate the financial statements for Plant and Sun for 2014, 2015 and 2016. Please provide all the same information as Ni above 36 Note: If no journal entry is required, please indicate that no journal entry" is needed. 2 12/31/14 Trial Halances Plant Elimination & Adjustments Consolidated DAN Create Cost Method Entries Plant Co. 4 INCOME STATEMENT 5 Net sales 6 Cost of sales 7 Other expenses 8 Dividend Income 9 Consolidated NI 10 To NCI 11 To Controlling interest 800,000 410,000 215,000 36,000 211 000 650 000 250.000 50 000 350.000 14 STATEMENT OF RETAINED EARNINGS 15 Retained earnings, January 1 16 NI 211,000 17 Dius 50.000 330,000 350 DOO 45,000 C. Convert to Equity 635,000 19 End RE 20 21 BALANCE SHEET 22 Cash 23 Accounts receivablet 24 Inventory 25 Land 26 Goodwill 27 Investment in Sun 425,000 800,000 900.000 735,000 230,000 270,000 100.000 S. Stockholder's Equity 775.000 135.000 29 Total Assets 30 31 Ladies 32 Common stock 33 Other paid in capital 34 Retained Earnings 622.000 500 000 250,000 M 300.000 100.000 100.000 635.000 Income m at E xpense Allocation 123115 Trial Balances Plant Sun liminations & Adjustment Consolidated Debit Credit Balance Sheet 4 INCOME STATEMENT 5 Net sales Cost of sales 7 other expenses 8 Div income 9 Consolidated NI 10 To NCI 11 To Controlling interest 12 Tots Consolidated Net Income 785,000 362,000 218,000 44,000 249,000 684,000 287,000 37,000 360,000 13 C. Convert to Equity 14 STATEMENT OF RETAINED EARNINGS 15 Retained earnings, January 1 16 NI 17 Divs e 249,000 70,000 635,000 360,000 55,000 S stockholder's Equity 19 End RE 940,000 21 BALANCE SHEET 22 Cash 23 Accounts receivable net 24 Inventory 25 Land 26 Goodwill 27 Investment in Sun W 442.000 683.000 900.000 968,000 310,000 208,000 100.000 775,000 29 Total Assets 31 Liabilities 32 Common stock 33 Other paid in capital 34 Retained Earnings 35 NCI 910,000 500,000 250.000 He 246,000 300,000 100.000 940,000 D-Div Elimination 12/31/16 Trial Balances Plant Eliminations & Adustments Consolidated Debit Credit Balance Sheet INCOME STATEMENT 5 Net sales 6 Cost of sales 7 Other expenses 8 Dividend Income 9 Consolidated NI 10 To NCI 11 To Controlling interest 12 Total Consolidated Net Income 785,000 362.000 218.000 52,000 257.000 656,000 292.000 39.000 325.000 c. Convert to Equity 14 STATEMENT OF RETAINED EARNINGS 15 Retained earning, January 1 16 NI 17 Divs 3,140,000 257,000 70,000 940,000 325.000 65.000 S-Stockholder's Equity 19 End RE 3,327,000 1.200.000 21 BALANCE SHEET 22 Cash 23 Accounts receivable net 24 Inventory 25 Land 26 Goodwill 27 Investment in Sun 1,946,000 421,000 610,000 1,200,000 985,000 400,000 250,000 100,000 775,000 31 Total Assets 4,952.000 1.735.000 -Income Elimination 33 Liabilities 34 Common stock 35 Other paid in capital 36 Retained Earnings 37 NCI 875,000 500,000 250.000 3.327.000 135,000 300,000 100.000 1.200.000 D-Div Elimination 40 Total LE 4,952,000 1,735,000 E-Expense Allocation 1 Practice Problem On January 1, 2014 Plant Company purchased 80% of the common stock of Sun Company for $775,000. Sun reported the following: Income Dividends 2014 $350,000 $45,000 2015 $360,000 $55.000 2016 $325,000 $65,000 9 On December 31, 2013,just prior to the acquisition, the balance sheets of Plant Company and Sun Company were as follows: 13 Cash 14 Accounts receivable (net) 15 Inventory 16 Land Plant $1,650,000 400,000 600,000 900.000 $3,550,000 (Book) $515,000 190,000 125,000 100.000 $930,000 Sun (Market $515,000 190,000 125.000 150.000 $980.000 $230,000 No amortization required 19 Liabilities 20 Common stock 21 Additional paid in capital 22 Retained earnings $0 500,000 250,000 2,800,000 $3,550.000 $200,000 300.000 100.000 330,000 $930,000 25 Required: 1. Assume that Plant accounts for the acquisition using the Equity method. Use the information above as well as the incomplete worksheet information presented on the following pages to consolidate the financial statements for plant and Sun for 2014, 2015 & 2016 in working the consolidations, please provide the following information: 1. The Equity method entries that Plant would make each year 2. The Allocation Schedule to allocate excess fair values 3. The consolidation entries 4. The Completed worksheets showing the consolidated totals 2. Assume that Plant accounts for the acquisition using the initial Value method (ie, the cost method). Use the information above as well as the appropriate Incomplete worksheet information to consolidate the financial statements for Plant and Sun for 2014, 2015 and 2016. Please provide all the same information as Ni above 36 Note: If no journal entry is required, please indicate that no journal entry" is needed. 2 12/31/14 Trial Halances Plant Elimination & Adjustments Consolidated DAN Create Cost Method Entries Plant Co. 4 INCOME STATEMENT 5 Net sales 6 Cost of sales 7 Other expenses 8 Dividend Income 9 Consolidated NI 10 To NCI 11 To Controlling interest 800,000 410,000 215,000 36,000 211 000 650 000 250.000 50 000 350.000 14 STATEMENT OF RETAINED EARNINGS 15 Retained earnings, January 1 16 NI 211,000 17 Dius 50.000 330,000 350 DOO 45,000 C. Convert to Equity 635,000 19 End RE 20 21 BALANCE SHEET 22 Cash 23 Accounts receivablet 24 Inventory 25 Land 26 Goodwill 27 Investment in Sun 425,000 800,000 900.000 735,000 230,000 270,000 100.000 S. Stockholder's Equity 775.000 135.000 29 Total Assets 30 31 Ladies 32 Common stock 33 Other paid in capital 34 Retained Earnings 622.000 500 000 250,000 M 300.000 100.000 100.000 635.000 Income m at E xpense Allocation 123115 Trial Balances Plant Sun liminations & Adjustment Consolidated Debit Credit Balance Sheet 4 INCOME STATEMENT 5 Net sales Cost of sales 7 other expenses 8 Div income 9 Consolidated NI 10 To NCI 11 To Controlling interest 12 Tots Consolidated Net Income 785,000 362,000 218,000 44,000 249,000 684,000 287,000 37,000 360,000 13 C. Convert to Equity 14 STATEMENT OF RETAINED EARNINGS 15 Retained earnings, January 1 16 NI 17 Divs e 249,000 70,000 635,000 360,000 55,000 S stockholder's Equity 19 End RE 940,000 21 BALANCE SHEET 22 Cash 23 Accounts receivable net 24 Inventory 25 Land 26 Goodwill 27 Investment in Sun W 442.000 683.000 900.000 968,000 310,000 208,000 100.000 775,000 29 Total Assets 31 Liabilities 32 Common stock 33 Other paid in capital 34 Retained Earnings 35 NCI 910,000 500,000 250.000 He 246,000 300,000 100.000 940,000 D-Div Elimination 12/31/16 Trial Balances Plant Eliminations & Adustments Consolidated Debit Credit Balance Sheet INCOME STATEMENT 5 Net sales 6 Cost of sales 7 Other expenses 8 Dividend Income 9 Consolidated NI 10 To NCI 11 To Controlling interest 12 Total Consolidated Net Income 785,000 362.000 218.000 52,000 257.000 656,000 292.000 39.000 325.000 c. Convert to Equity 14 STATEMENT OF RETAINED EARNINGS 15 Retained earning, January 1 16 NI 17 Divs 3,140,000 257,000 70,000 940,000 325.000 65.000 S-Stockholder's Equity 19 End RE 3,327,000 1.200.000 21 BALANCE SHEET 22 Cash 23 Accounts receivable net 24 Inventory 25 Land 26 Goodwill 27 Investment in Sun 1,946,000 421,000 610,000 1,200,000 985,000 400,000 250,000 100,000 775,000 31 Total Assets 4,952.000 1.735.000 -Income Elimination 33 Liabilities 34 Common stock 35 Other paid in capital 36 Retained Earnings 37 NCI 875,000 500,000 250.000 3.327.000 135,000 300,000 100.000 1.200.000 D-Div Elimination 40 Total LE 4,952,000 1,735,000 E-Expense Allocation