JONES COMPANY

Consolidating Work Sheet

Year 1 End

Jones Smith Eliminating Entries

Company Company Debits 1 Credits

$100,000 $ 50,000

161,000

2,400

242,600 150,000

313,400 121,600

135,200 30,200

18,400 7,200

15,000

6,000

96,500 41,000

7,500 3,000

(495,200) (181,000)

(4,800)

(300,000)

(100,000)

(84,000)

{40,000}

0 0

Jones Company acquired an 80% interest in Smith Company at the beginning of Year 1 for $161,000. The book value of the stock purchased was $140,000. In negotiating the purchase price, it was agreed that the market value was justified in exceeding the book value because of the strong foothold in the market established by a newly launched product, Instant Coffee. Competitive brands are now coming on the market, however, and management believes that the initial advantage gained by Smith's new product will be dissipated in the next five years. Any goodwill should be amortized over this period.During Year 1, Jones sold to Smith merchandise for $85,000 that cost $10,000, and 20% of these goods are still in Smith's ending inventory. Jones uses the cost method to account for its investment in Smith. Minority interest will reflect the legal method. Required: a. Complete the accompanying work sheet, supplying notes to explain the entries. b. Prepare a statement of consolidated net income showing minority interest. A ccount Title Inventory Investment in Smith Company Dividend Receivable From Smith Company Other Assets Cost of Goods Sold Operating Expenses Income Taxes Dividends PaidJones Company Dividends PaidSmith Company Liabilities Dividends Payable Sales Dividend Income Capital StockJones Company Capital StockSmith Company Retained EarningsJones Company Retained EarningsSmith Company Total JONES COMPANY Consolidating Work Sheet Year 1 End Jones Smith Eliminating Entries Company Company Debits 1 Credits $100,000 $ 50,000 161,000 2,400 242,600 150,000 313,400 121,600 135,200 30,200 18,400 7,200 15,000 6,000 96,500 41,000 7,500 3,000 (495,200) (181,000) (4,800) (300,000) (100,000) (84,000) {40,000} 00 2. (10 points) Explain a) the nature of minority interest and b) its proper presentation on a consolidated balance sheet