Question
Exercise # 2 Polar acquired Snow on January 1, 2019 at a price $300,000 in excess of book value. Of that excess, $200,000 was allocated
Exercise # 2
Polar acquired Snow on January 1, 2019 at a price $300,000 in excess of book value. Of that excess, $200,000 was allocated to an unrecorded patent with a 10-year life, with the remainder to goodwill. Polar uses the equity method to account for its investment in its subsidiary.
In 2020, Snow sold to Polar land having a book value of $90,000 for a total price of $145,000. Polar still owns the land as of 12/31/21.
Financial statements of the two companies for the year ended December 31, 2021 are presented below.
| Polar | Snow |
Sales revenue | $2,500,000 | $525,000 |
Cost of goods sold | (1,750,000) | (345,000) |
Gross profit | 750,000 | 180,000 |
Operating expenses | (475,000) | (102,500) |
Income (loss) from Snow | 57,500 | ________ |
Net Income | $ 332,500 | $ 77,500 |
|
|
|
Retained Earnings, 1/1/21 | $ 840,700 | $245,650 |
Net income | 332,500 | 77,500 |
Dividends | ( 52,900) | (8,850) |
Retained Earnings, 12/31/21 | $1,120,300 | $314,300 |
|
|
|
Cash and receivables | $ 320,100 | $178,200 |
Inventory | 461,700 | 278,600 |
Equity investment in Snow | 625,400 |
|
Property, plant & equipment (Net) | 1,496,500 | 321,700 |
Total Assets | $2,903,700 | $778,500 |
|
|
|
Accounts payable | $ 182,400 | $ 55,900 |
Accrued liabilities | 205,300 | 70,200 |
Notes payable | 810,000 | 212,000 |
Common stock | 354,200 | 45,000 |
Additional paid-in capital | 231,500 | 81,100 |
Retained Earnings, 12/31/21 | 1,120,300 | 314,300 |
Total Liabilities and Equities | $2,903,700 | $778,500 |
Required:
a. Prepare a schedule showing the computation of Income (loss) from subsidiary on Polar's pre-consolidation books for 2021.
b. Calculate the Equity Investment account on Polar's consolidation balance sheet at December 31, 2020.
c. Prepare the consolidation worksheet entries for 2021 in journal format.
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