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On January 1, 20X8 , Bond Corporation acquired 80 percent of Gale Company's voting stock. On...

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.

Solutions

Expert Solution

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

ekkarill92 answered 4 months ago
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