In: Accounting
On January 1, 20X8 , Bond Corporation acquired 80 percent of Gale Company's voting stock. On the date of acquisition, the book value and fair value of Gale's net assets were equal. Bond uses the equity method of accounting for its ownership of Gale, and includes the amount of accumulated depreciation prior to acquisition in its elimination entries on the consolidation worksheet.
On December 31, 20X8, the trial balances of the two companies are as follows :
Item | Debit | Credit | Debit | Credit |
Current Assets | 538,000 | 127,000 | ||
Depreciable Assets | 950,000 | 428,000 | ||
Investment in Gale Co. | 298,400 | |||
Depreciation Expense | 185,000 | 12,000 | ||
Other Expenses | 550,000 | 62,000 | ||
Dividends Declared | 300,000 | 40,000 | ||
Accumulated Depreciation | 284,000 | 50,000 | ||
Current Liabilities | 250,000 | 105,000 | ||
Long-Term Debt | 220,000 | 27,000 | ||
Common Stock | 328,600 | 133,000 | ||
Retained Earnings | 750,000 | 119,000 | ||
Sales | 860,000 | 235,000 | ||
Income from Gale Co. | 128,800 | |||
2,692,600 | 2,692,600 | 669,000 | 669,000 |
a) What amount did Bond Corporation pay for its
investment in Gale Company on January 1, 20X8?
b) Prepare the elimination entries required to prepare
the consolidated financial statements as of December 31,
20X8.
c) Determine the amount reported on the consolidated
financial statements as of December 31, 20X8 for retained earnings
.
d) Determine the amount reported on the consolidated
financial statements as of December 31, 20X8 for depreciable
assets.
a) Computation of amount of investment in Gale Company:
Investment in Gale company |
298,400 |
Less: net income from gale |
(128,800) |
Add: Dividend income (40,000*80%) |
32,000 |
Amount paid for initial investment |
201,600 |
b) Elimination entries:
Account title |
||
Common stock |
133,000 |
|
Retained earnings |
119,000 |
|
Differential |
46,000 |
|
Investment in Gale company |
298,400 |
|
Accumulated depreciation (50,000*80%) |
40,000 |
|
Depreciable asset |
40,000 |
c) Computation of amount of retained earnings reported on
consolidation balance sheet:
Bond corporation |
gale company |
|
sales |
860,000 |
235,000 |
income from gale |
128,800 |
|
credits |
988,800 |
235,000 |
depreciation exp |
(185,000) |
(12,000) |
other expenses |
(550,000) |
(62,000) |
income carry forward |
253,800 |
161,000 |
retained earnings |
750,000 |
119,000 |
income from above |
253,800 |
161,000 |
1,003,800 |
280,000 |
|
Dividends declared |
(300,000) |
(40,000) |
retained earnings on dec 31 |
703,800 |
240,000 |
Total retained earnings |
943,800 |
|
Less: Adjustments |
(240,000) |
|
Consolidated retained earnings |
703,800 |
d) Computation of amount of Depreciable assets reported on
consolidation balance sheet:
Account title |
||
Depreciable Assets of Bond corporation |
950,000 |
|
Depreciable Assets of Gale company |
428,000 |
|
Less: Accumulated depreciation elimination entry |
(40,000) |
|
Consolidated Depreciable assets |
1,252,400 |