Problem 1 (10 points)

On January 1, 2019, Company P created a wholly-owned subsidiary, S, by investing $2,800 cash. On that date, Ps balance sheet showed $5,300 of retained earnings.

Below are S Companys 2019 and 2020 net income and dividends declared:

Net Income Dividends Declared

2019 $480 $270

2020 $620 $360

Ps operating income (from its own operations, without including investment income) and dividends declared are as follows:

Operating Income Dividends Declared

2019 $850 $570

2020 $910 $640

Required: Calculate the following figures. Assume P uses (1) the equity method, (2) the

cost method to record its investment in S.

1. Ps 2020 net income:

Equity Method = _____________

Cost Method = _____________

2. Ps Investment in S account balance (in Ps book) at 12/31/20:

Equity Method = _____________

Cost Method = _____________

3. Ps retained earnings at 12/31/20:

Equity Method = _____________

Cost Method = _____________

4. 2020 consolidated net income:

Equity Method = _____________

Cost Method = _____________

5. Ss retained earnings at 12/31/20: ______________

6. Ss net assets at 12/31/20: ______________

Problem 2 (3 points)

Pacer Company created Spur, Inc. four years ago and has been using the cost method to account for this investment. The following account balances are found in each firms financial statements of the current year, 2020:

Accounts Pacer Spur

Retained earnings, 1/1/20 $650,000 $275,000

Net income, 2020 290,000* 165,000

Dividends declared, 2020 160,000 90,000

Retained earnings, 12/31/20 780,000 350,000

Common stock and APIC, 12/31/20 840,000 568,000

(*The term net income means Pacers investment income has been included.)

Required: Provide the following figures:

1. Consolidated net income of Pacer and Spur, 2020: ______________

2. Pacers Investment in Spur at 12/31/20 (in Pacers balance sheet): ____________

Problem 3 (3 points)

Pelican Company created Sun, Inc. three years ago and has been using the equity method to account for this investment. The following account balances are found in each firms financial statements of the current year, 2020:

Accounts Pelican Sun

Retained earnings, 1/1/20 $650,000 $275,000

Net income, 2020 290,000* 165,000

Dividends declared, 2020 160,000 90,000

Retained earnings, 12/31/20 780,000 350,000

Common stock and APIC, 12/31/20 840,000 568,000

(*The term Net income means Pelicans investment income has been included.)

Required: Provide the following figures:

1. Consolidated net income of Pelican and Sun, 2020: ______________

2. Pelicans Investment in Sun at 12/31/20 (in Pelicans balance sheet): ____________