QUESTION 3 On January 1, 2017, P purchased 80% of the common stock of S for $80,000. S had common stock of $80,000 and retained earnings of $12,000 at that time. On December 31, 2021, the trial balances of the two companies were: P S Cash 13,000 14,000 Accounts receivable 37,000 36,000 Investment in S Company 80,000 0 Plant and equipment 60,000 45,000 Land 18,000 12,000 Dividends declared 10,000 12,000 Inventory. 12/31 59,600 15,000 Cost of Sales and Expenses 50,000 30,000 Total debits 314,600 164,000 Liabilities 10,000 6,000 Common stock 120,000 80,000 Retained earnings 55,000 30,000 Sales 120,000 48,000 Dividend income 9,600 0 Total credits 314,600 164,000 Any difference between book value and the value implied by the purchase price relates to Land, You are required to: (e) Prepare the working paper entry on December 31, 2021, to establish reciprocity and convert to the equity method Answer: Debit Credit Investment account Retained camnings- P (6) Prepare the working paper elimination entries on December 31, 2021 to eliminate the investment account Answer: Debit Credit Common stock Retained earings Difference implied and book values Noncontrolling interest Investment in S company