UNIT 4 POST PROBLEM 2

Following are trial balances of Conglomerate and Sub Company as of

December 31, 2014.

Conglomerate Sub

Cash $1,440,000 $ 120,000

Inventories 60,000 40,000

Investment in S 560,000

Building 400,000 280,000

Equipment 120,000 180,000

Accounts Payable (180,000) (120,000)

Common Stock (1,800,000) (100,000)

Additional Paid in Capital (250,000) (300,000)

Retained Earnings (120,000) (60,000)

Sales (1,100,000) (300,000)

Cost of Goods Sold 700,000 200,000

Operating Expenses 170,000 60,000

Other information:

Conglomerate purchased 90% of Sub Company on December 31, 2013 for $560,000. The totals above are for one year after the purchase.

Differences between identifiable net assets of Sub Company on December 31, 2013 (the date of purchase) were:

Fair Value Book Value Difference

Building 300,000 280,000 20,000 (20 year life)

Equipment 200,000 180,000 20,000 (10 year life)

Goodwill created on the date of purchase was $122,222.

On December 31, 2014 Sub Company paid $10,000 in dividends.

Requirements:

No entries have been made on either C or Ss books for dividends paid in 2014 and recording the subs net income on Cs books using the equity method. You must post entries to the appropriate accounts for the payment of the dividends in Cs and Ss accounts and recording the subs net income on Cs books using the equity method. This will change some of the balances above. . (Show entries in general journal and/or T Account format.)

Prepare consolidated financial statements for the year ending December 31, 2014, using a consolidation worksheet showing the eliminations, if any. Prepare a consolidated balance sheet, income statement and statement of retained earnings.