Question
Hana co., acquires 80 percent of Ahmad Corporation for JD361,600 cash on January 1, Y1. For internal reporting purposes, Hana, co., employs the equity method
Hana co., acquires 80 percent of Ahmad Corporation for JD361,600 cash on January 1, Y1. For internal reporting purposes, Hana, co., employs the equity method to account for this investment.
Ahmad's assets and liabilities equaled their fair values except for buildings which are overvalued by JD10,000. Buildings have a 5-year remaining life, (impairment of goodwill 10% yearly). On January 1, Y1, Ahmad had the following equities:
Common stock
250,000
Additional paid-in capital
110,000
Retained earnings
40,000
Total
400,000
The companies financial statements for the year ending December 31, Y1, follow:
Hana Co.
Ahmad Co.
Gross Profit
100,000
140,000
Selling, administrative expenses
(70,000)
(25,000)
Operating Income
30,000
115,000
Equity in Subsidiary Earnings
??????
-
Net income
??????
115,000
Retained earnings, 1/1/Y1
60,000
40,000
Net income
?????
115,000
Dividends
(30,000)
(20,000)
Retained earnings, 12/31/Y1
??????
135,000
Cash
89,400
195,000
Buildings, net
523,000
395,000
Investment in Ahmad
?????
-
Total assets
?????
590,000
Accounts payable
83,000
50,000
Notes payable
105,000
45,000
Common stock
550,000
250,000
Additional paid-in capital
160,000
110,000
Retained earnings
?????
135,000
Total liabilities and equities
?????
590,000
Prepare a worksheet to consolidate the accounts of the two companiesDecember 31?
Hanas income statement December 31, Y1
Hana
Ahmad
Adjustments
consolidated
DR
CR
Gross Profit
100,000
140,000
240000
Selling, administrative expenses
(70,000)
(25,000)
Answer
Answer
Answer
Operating Income
30,000
115,000
140800
Equity in Subsidiary Earnings
Answer
-
Answer
0
Noncontrolling interest share
Answer
Answer
Net income
Answer
115,000
Hanas Statement of retained earnings December 31, 2014
Hana
Ahmad
Adjustments
consolidated
DR
CR
Retained earnings, 1/1/Y1
60,000
40,000
Answer
60000
Net income
Answer
115,000
Answer
Answer
Dividends
(30,000)
(20,000)
Answer
Answer
Answer
Retained earnings, 12/31/Y1
Answer
135,000
Answer
Hanas balance sheet December 31, 2014
Hana
Ahmad
Adjustments
consolidated
DR
CR
Cash
89,400
195,000
284,400
Buildings, net
523,000
395,000
Answer
Answer
Answer
Investment in Ahmad
Answer
-
Answer
Answer
0
Goodwill
Answer
Answer
Answer
Total assets
Accounts payable
83,000
50,000
133,000
Notes payable
105,000
45,000
150,000
Common stock
550,000
250,000
Answer
Answer
Additional paid-in capital
160,000
110,000
Answer
Answer
Retained earnings
Answer
135,000
Answer
Answer
Noncontrolling interest
Answer
Answer
Answer
Total liabilities and equities
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The Oxford Handbook Of Entrepreneurial Finance
Authors: Douglas Cumming
1st Edition
0195391241, 978-0195391244
