Consolidated Worksheet at End of the Second Year of Ownership (Equity Method)

On January 1, 20X8, Pierce Corporation acquired 90 percent of Sharp Company's voting stock, at

underlying book value. The fair value of the noncontrolling interest was equal to 10 percent of the

book value of Sharp at that date. Pierce uses the equity method in accounting for its ownership of

Sharp. On December 31, 20X9, the trial balances of the two companies are as follows:

x

Pierce Company Sharp Corporation

Debit Credit Debit Credit

Current Assets $ 225,500 $ 145,000

Depreciable Assets 300,000 225,000

Investment in Sharp

Corp. 144,000

Depreciation Expense 30,000 25,000

Other Expenses 180,000 85,000

Dividends Declared 40,000 10,000

Accumulated

Depreciation $ 150,000 $ 100,000

Current Liabilities 45,000 20,000

Long-Term Debt 75,000 90,000

Common Stock 100,000 75,000

Retained Earnings 282,500 80,000

Sales 253,500 125,000

Income from Sharp 13,500

$ 919,500 $ 919,500 $ 490,000 $ 490,000

Required:

1) Give all equity method entries required on December 31, 20X9, to prepare consolidated

financial statements.

2) Give all consolidating entries required on December 31, 20X9, to prepare consolidated

financial statements.

3) Prepare a three-part consolidation worksheet as of December 31, 20X9

1. Equity Method Entries: Record Pierce Co.'s % share of Sharp Co.'s 20X9 income Record Pierce Co.'s % share of Sharp Co.'s 20X9 dividend Investment in Sharp Co. Income from Sharp Co. Ending Balance Ending Balance Income to NCI NCI Ending Balance Ending Balance Common Stock Retained Earnings Beginning Balance Beg Balance Ending Balance Post-Closing Balance 2. Elimination Entries: To reverse equity method entries made during the year and return Investment account to the beginning of year balance To record the changes to NCI during the year To eliminate the Investment account 3. Consolidation Worksheet: Sharp Co. Elimination Entries DR CR Pierce Co. Consolidated Income Statement Sales Less: Depreciation Expense Less: Other Expenses Income from Sharp Co. Consolidated Net Income Income to NCI Controlling Interest in Net Income 253,500 (30,000) (180,000) 13,500 57,000 125,000 (25,000) (85,000) 15,000 Statement of Retained Earnings Beginning Balance Net Income 282,500 80,000 (40,000) (10,000) Less: Dividends Declared Ending Balance Balance Sheet Current Assets Depreciable Assets Less: Accumulated Depreciation 225,500 300,000 145,000 225,000 (150,000) (100,000) Investment in Sharp Co. Total Assets 144,000 519,500 270,000 45,000 75,000 100,000 20,000 90,000 75,000 Current Liabilities Long-Term Debt Common Stock Retained Earnings NCI in NA of Sharp Co. Total Liabilities & Equity 519,500 270,000 1. Equity Method Entries: Record Pierce Co.'s % share of Sharp Co.'s 20X9 income Record Pierce Co.'s % share of Sharp Co.'s 20X9 dividend Investment in Sharp Co. Income from Sharp Co. Ending Balance Ending Balance Income to NCI NCI Ending Balance Ending Balance Common Stock Retained Earnings Beginning Balance Beg Balance Ending Balance Post-Closing Balance 2. Elimination Entries: To reverse equity method entries made during the year and return Investment account to the beginning of year balance To record the changes to NCI during the year To eliminate the Investment account 3. Consolidation Worksheet: Sharp Co. Elimination Entries DR CR Pierce Co. Consolidated Income Statement Sales Less: Depreciation Expense Less: Other Expenses Income from Sharp Co. Consolidated Net Income Income to NCI Controlling Interest in Net Income 253,500 (30,000) (180,000) 13,500 57,000 125,000 (25,000) (85,000) 15,000 Statement of Retained Earnings Beginning Balance Net Income 282,500 80,000 (40,000) (10,000) Less: Dividends Declared Ending Balance Balance Sheet Current Assets Depreciable Assets Less: Accumulated Depreciation 225,500 300,000 145,000 225,000 (150,000) (100,000) Investment in Sharp Co. Total Assets 144,000 519,500 270,000 45,000 75,000 100,000 20,000 90,000 75,000 Current Liabilities Long-Term Debt Common Stock Retained Earnings NCI in NA of Sharp Co. Total Liabilities & Equity 519,500 270,000