We now examine consolidations in years after the acquisition has taken place. Continuing with the same example from above, assume that P acquires 100% of the stock of S for $1,000,000 cash on 1/1/21. S’s accounts at the acquisition date are as follows:

                                                Book Value                 Fair Value                   Difference

Current assets                         $350,000                     $350,000                                 -0-

Land                                        300,000                     400,000                         100,000

Buildings (10-year life)          500,000                     650,000                         150,000           

Equipment (5-year life)          200,000                     150,000                          (50,000)

Liabilities                               (650,000)                   (650,000)                               -0-

Net assets                                $700,000                     $900,000                     $ 200,000

Common stock                       100,000

Additional PIC                        200,000

Retained earnings                   400,000

S earns income of $80,000 during 2021 and pays a cash dividend of $30,000. In addition, S earns income of $100,000, $120,000, and $125,000 and pays dividends of $30,000, $35,000, and $40,000 in 2022, 2023, and 2024, respectively. We want to prepare consolidated financial statements as of 12/31/24.

a. Assume P uses the equity method to account for S. What is the balance in the investment account as of 12/31/23? As of 12/31/24?

A) How much equity in investee income do they recognize during 2024?

B) How much excess depreciation has been recognized on the building and equipment prior to 2024

C )Consolidating entries (equity method, 2024):