On January 1, Year 1, Hanscam Corporation (HC) acquired 75,000 shares (75 percent) of Russell Corporation's (RC) common stock for $1,000,000 in cash. Following HC’s acquisition, RC’s shares ($2 par) continue to trade at about $12 per share. On 1/1/Year 1 RC has $450,000 of APIC (additional paid-in capital) and $350,000 of retained earnings. Information about Russell Corporation Accounts is shown below:

RC Accounts on 1/1/Year 1

Book Value Fair Value Difference

PPE (14-year life) 500,000 570,000 70,000

Patents (6-year life) 0 90,000 90,000

Other assets 700,000 700,000

Liabilities (200,000) (200,000) 0

Total Net Assets $1,000,000 $ 1,160,000 $ 160,000

RC had income of $80,000 in Year 1, $100,000 in Year 2, and $80,000 in Year 3. RC paid dividends of $40,000 in years 1 and 2 and $50,000 in year 3. On December 31, Year 2, RC owes HC $50,000 which is part of RC’s Notes Payable account.

Complete the consolidation income statement and balance for HC on the provided worksheet for the year ending 12/31/Year 3. HC uses the equity method for its internal records of majority owned subsidiaries.

If HC has applied the initial value method, what Entry *C is needed for a Year 3 consolidation?

Consolidation Worksheet 12/31/Year 3 Equity Method

Accounts	Hanscam	Russell	Debit	Credit	Noncon Int	Totals
Income Statement
Revenues	(1,000,000)	(500,000)
Expenses	745,000	420,000
Equity in Subsidiary Earnings	( 45,000)	0
Net Income	(300,000)	( 80,000)
Noncontrolling interest NI
Controlling interest NI
Statement of RE
Retained Earnings 1/1	(1,800,000)	(430,000)
Net Income	(300,000)	(80,000)
Dividends declared	100,000	50,000
Retained earnings 12/31	(2,000,000)	(460,000)
Balance Sheet
Investment in Russell	1,037,500	0
PPE (net) (8-years)	1,000,000	600,000
IPR&D	0	0
Goodwill	0	0
Other Assets	962,500	660,000
Total Assets	3,000,000	1,260,000
Accounts Payable	(200,000)	(100,000)
Notes Payable	0	(50,000)
Noncontrolling int 1/1
Noncontrolling int 12/31
Common Stock	(300,000)	(200,000)
Additional Paid-in capital	(500,000)	(450,000)
Retained earnings	(2,000,000)	(460,000)
Total liabilities and equity	(3,000,000)	(1,260,000)