Question
2-Assume that, on January 1, 2015, Jensen Company acquired a 90% interest in Saunders Company for a purchase price that was $450,000 over the book
2-Assume that, on January 1, 2015, Jensen Company acquired a 90% interest in Saunders Company for a purchase price that was $450,000 over the book value of the subsidiarys Stockholders Equity on the acquisition date. Jensen uses the equity method to account for its investment in Saunders. Jensen assigned the acquisition-date AAP as follows:
AAP Items | Initial Fair Value | Useful Life (years) |
PPE | $200,000 | 20 |
Patent | 60,000 | 10 |
Customer List | 40,000 | 10 |
Goodwill | 150,000 | Indefinite |
| $450,000 |
|
90% of if the Goodwill is allocated to the parent. Jensen and Saunders report the following financial statements December 31, 2018:
Income Statement | ||
| Jensen | Saunders |
Sales | $7,530,000 | $1,913,000 |
Cost of goods sold | (4,854,000) | (843,300) |
Gross Profit | 2,676,000 | 1,069,800 |
Income (loss) from subsidiary | 523,620 |
|
Operating expenses | (1,618,800) | (467,900) |
Net income | $1,580,820 | $ 601,800 |
Statement of Retained Earnings | ||
| Jensen | Saunders |
BOY Retained Earnings | $ 8,784,400 | $3,038,500 |
Net income | 1,580,820 | 601,800 |
Dividends | (190,050) | (38,600) |
Ending Retained Earnings | $10,175,170 | $3,601,700 |
Balance Sheet | ||
| Jensen | Saunders |
Assets: |
|
|
Cash | $ 880,200 | $ 662,600 |
Accounts receivable | 1,080,500 | 897,300 |
Inventory | 1,652,800 | 972,500 |
Equity Investment | 3,838,770 |
|
PPE, net | 6,610,600 | 2,553,100 |
| $14,062,870 | $5,085,500 |
|
|
|
Liabilities and Stockholders Equity: |
|
|
Current Liabilities | $ 699,300 | $ 400,200 |
Long-term Liabilities | 1,509,600 | 790,000 |
Common Stock | 603,200 | 118,100 |
APIC | 1,075,600 | 175,500 |
Retained Earnings | 10,175,170 | 3,601,700 |
| $14,062,870 | $5,085,500 |
a.Compute the EOY noncontrolling interest equity balance. b. Prepare the consolidation journal entries.
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