QUESTION Paper Company acquired 70 percent of Scissor Company's outstanding common stock for $35,000 on January 1, 2019, when the book value of Scissor's net assets was equal to $50,000. Paper uses the equity method to account for investments. Trial balance data for Paper and Scissor as of December 31, 2019, are as follows (all amounts are in dollars): Paper Company Scissor Company Debit Credit Debit Credit Cash $12,000 $4,500 Accounts Receivable 41,500 12.500 Inventory 47,500 B,000 Investment in Scissor Corporation 43,750 Land 50,000 45.000 Buildings and equipment 72,250 64.000 Cost of Goods Sold 125.000 32,000 Depreciation Expense 4.800 2.000 Selling and Administration Expense 78,450 14,500 Dividends Declared 9,500 5,000 Accumulated Depreciation $42.500 $14,500 Accounts Payable 85,000 47,000 Bonds Payable 20,000 10,000 Common Stack 50,000 37,500 Retained Earnings 38,500 12,500 Sales 236,500 66,000 Income from Subsidiary 12,250 $484,750 $484,750 $187,500 $187,500 Required: a) Prepare the journal entries on Paper's books for the acquisition of Scissor on January 1, 2019, b) Prepare the equity method entries related to the investment in Scissor Company during 2019. c) Prepare book value calculation table d) Prepare basic and optional consolidation entries. c) Prepare a consolidation worksheet for 2019 in good form. 1) Prepare the consolidated balance sheet in good form as of December 31 2019. SOLUTION KEY Equity method journal entries related to the investment ACCOUNT TITLE Debit Credit Book Value Calculations Table Book Value Calculation NCI (30% Paper's Book Value Common Stock Retained Earnings Beginning Balance Net Income Dividends Declared Ending Balance Basic Consolidation entry ACCOUNT TITLE Debit Credit Accumulated depreciation consolidation entry ACCOUNT TITLE Debit Credit Course Tide Advanced Financial Accounting Course Code ACT460 Dr. AE Cookin Online Summer 2020 31 Page Elimination Entries Income Statement DR CR Consolidated Sales Paper Co. Scissor Co. 236,500 66,000 125,000 32,000 4,800 2.000 Less: COGS 14,500 Less: Depreciation Expense Less: Other Expenses Income from Scissor Co. Consolidated Net Income 78,450 12,250 40,500 17,500 NCI in Net Income Controlling Interest in Net Income Statement of Retained Earnings Beginning Balance Net Income Less: Dividends Declared 38,500 40,500 12,500 17.500 5.000 9,500 Ending Balance 69,500 25,000 Balance Sheet Assets. Cash 12,000 4,500 Accounts Receivable 41,500 12,500 Inventory 47,500 8,000 Investment in Sedum Co. 43,750 Land 50,000 72,250 -42,500 45,000 64,000 -14,500 224,500 119,500 85,000 47,000 Buildings & Equipment Less: Accumulated Depreciation Total Assets Liabilities and Equity: Accounts Payable Bonds Payable Common Stock Retained Earnings NCL of NA in Sedum Co. Total Liabilities & Equity 20,000 50,000 69,500 10,000 37,500 25.000 224,500 119,500 Paper Company and Its Subsidiary Balance Sheet December 31, 2019 QUESTION Paper Company acquired 70 percent of Scissor Company's outstanding common stock for $35,000 on January 1, 2019, when the book value of Scissor's net assets was equal to $50,000. Paper uses the equity method to account for investments. Trial balance data for Paper and Scissor as of December 31, 2019, are as follows (all amounts are in dollars): Paper Company Scissor Company Debit Credit Debit Credit Cash $12,000 $4,500 Accounts Receivable 41,500 12.500 Inventory 47,500 B,000 Investment in Scissor Corporation 43,750 Land 50,000 45.000 Buildings and equipment 72,250 64.000 Cost of Goods Sold 125.000 32,000 Depreciation Expense 4.800 2.000 Selling and Administration Expense 78,450 14,500 Dividends Declared 9,500 5,000 Accumulated Depreciation $42.500 $14,500 Accounts Payable 85,000 47,000 Bonds Payable 20,000 10,000 Common Stack 50,000 37,500 Retained Earnings 38,500 12,500 Sales 236,500 66,000 Income from Subsidiary 12,250 $484,750 $484,750 $187,500 $187,500 Required: a) Prepare the journal entries on Paper's books for the acquisition of Scissor on January 1, 2019, b) Prepare the equity method entries related to the investment in Scissor Company during 2019. c) Prepare book value calculation table d) Prepare basic and optional consolidation entries. c) Prepare a consolidation worksheet for 2019 in good form. 1) Prepare the consolidated balance sheet in good form as of December 31 2019. SOLUTION KEY Equity method journal entries related to the investment ACCOUNT TITLE Debit Credit Book Value Calculations Table Book Value Calculation NCI (30% Paper's Book Value Common Stock Retained Earnings Beginning Balance Net Income Dividends Declared Ending Balance Basic Consolidation entry ACCOUNT TITLE Debit Credit Accumulated depreciation consolidation entry ACCOUNT TITLE Debit Credit Course Tide Advanced Financial Accounting Course Code ACT460 Dr. AE Cookin Online Summer 2020 31 Page Elimination Entries Income Statement DR CR Consolidated Sales Paper Co. Scissor Co. 236,500 66,000 125,000 32,000 4,800 2.000 Less: COGS 14,500 Less: Depreciation Expense Less: Other Expenses Income from Scissor Co. Consolidated Net Income 78,450 12,250 40,500 17,500 NCI in Net Income Controlling Interest in Net Income Statement of Retained Earnings Beginning Balance Net Income Less: Dividends Declared 38,500 40,500 12,500 17.500 5.000 9,500 Ending Balance 69,500 25,000 Balance Sheet Assets. Cash 12,000 4,500 Accounts Receivable 41,500 12,500 Inventory 47,500 8,000 Investment in Sedum Co. 43,750 Land 50,000 72,250 -42,500 45,000 64,000 -14,500 224,500 119,500 85,000 47,000 Buildings & Equipment Less: Accumulated Depreciation Total Assets Liabilities and Equity: Accounts Payable Bonds Payable Common Stock Retained Earnings NCL of NA in Sedum Co. Total Liabilities & Equity 20,000 50,000 69,500 10,000 37,500 25.000 224,500 119,500 Paper Company and Its Subsidiary Balance Sheet December 31, 2019