On January 1, 2014, Petunia Company purchased an 85% interest im the captial stock of sunflower...

On January 1, 2014, Petunia Company purchased an 85% interest im the captial stock of sunflower Company for $3,400 (Cash + Shares of Petunia Company). Petunia Company uses the equity method to record its investment in Sunflower Company.

The plant is undervalued by 700 (7 year remaining life) and the equipment is overvalued by 200 (10 year remaining life) on January 1, 2014.

Prepare the journal entry to eliminate any income earned from Sunflower Corporation during 2014

Prepare the journal entry to eliminate Petunia's investment in Sunflower at December 31, 2014

Income statement	Petunia Company	Sunflower Company
Sales	(4,400)	(1,786)
Equity in Subsidiary Earnings	(498)
Total Revenue	(4,898)	(1,786)
Cost of Goods Sold	3,600	800
Depreciation Expense	160	120
Other Expenses	240	200
Total Cost and Expenses	4,000	1,120
Separate/Consolidated Income	(898)	(666)
Noncontrolling Interest in Income
Net Income to Controlling Interest	898	666
Retained Earnings Statement
1/1 Retained Earnings	(2,000)	(920)
Net Income from above	(898)	(666)
Dividends Declared	360	226
12/31 Retained Earnings to Balance	(2,538)	(1,360)

Solutions

Expert Solution

Entries for elimination of profit

Equity in subsidiary earning's	498
Investment in sunflower		498
(Eliminates the subsidiary Income (Equity Method) accrued by the parent.

Investment in sunflower	192
Dividend's Declared		192
( Eliminates the subsidiary Dividends.)

Entries for Elimination of Investment in Sunflower

Common Stock and Retained earnings	2975
Plant	595
Equipment		170
Investment in Sunflower		3400
( Being elimination of Subsidiary's Stockholder's Equity and the book value component within the parent Investment account also recognising unamortised allocations associated with adjustments of fair value for 85% share)

Since only 85% of shares are acquired, minority interest also needs to be accounted for 15% share.

Working Notes:

Equity Method
Purchase price paid		3400
Less: Income earned during the year		566
Less: Dividend received		-192
Less: Amortisation		-68
Closing balance of investment as per Equity Method		3,706

The entries to record the same would be

Minority Interest in earning's of sunflower

Minority Interest in Net Assets in Sunflower

( Being recognizition of minority interest’s claim on earnings and net assets is as follows)

Also Depreciation needs to be provided for Plant adjusted for Equipment.

Equiment	20
Depreciation expense	80
Plant		100
( Recognizes excess amortization Expenses for the current period on the allocations from the original adjustments to fair value)

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

On January 1, 2014, Pert Company purchased 85% of the outstanding common stock of Sales Company...

On January 1, 2014, Pert Company purchased 85% of the outstanding common stock of Sales Company for$350,000.On that date, Sales Company’s stockholders’ equity consisted of common stock, $100,000; other con-tributed capital, $40,000; and retained earnings, $140,000. Pert Company paid more than the book value of netassets acquired because the recorded cost of Sales Company’s land was significantly less than its fair value.During 2014 Sales Company earned $148,000 and declared and paid a $50,000 dividend. Pert Companyused the partial equity method...

Exercise 5-1 On January 1, 2013, Pam Company purchased an 85% interest in Shaw Company for...

Exercise 5-1 On January 1, 2013, Pam Company purchased an 85% interest in Shaw Company for $541,800. On this date, Shaw Company had common stock of $398,100 and retained earnings of $143,700. An examination of Shaw Company’s assets and liabilities revealed that their book value was equal to their fair value except for marketable securities and equipment: Book Value Fair Value Marketable securities $19,800 $44,600 Equipment (net) 120,200 140,000 (b) Determine the amounts at which the above assets (plus goodwill,...

Park Company purchased 90% of the stock of Salt Company on January 1, 2014, for $465,000,...

Park Company purchased 90% of the stock of Salt Company on January 1, 2014, for $465,000, an amount equal to $15,000 in excess of the book value of equity acquired. This excess payment relates to an undervaluation of Salt Company’s land. On the date of purchase, Salt Company’s retained earnings balance was $50,000. The remainder of the stockholders’ equity consists of no-par common stock. During 2018, Salt Company declared dividends in the amount of $10,000, and reported net income of...

On January 1, 2014, Paterson Company purchased 70% of the common stock of Smith Company for...

On January 1, 2014, Paterson Company purchased 70% of the common stock of Smith Company for $420,000. At that time, Smith’s stockholders’ equity consisted of $80,000 of Common stock, $60,000 of Other contributed capital, and $240,000 of Retained earnings. Any difference between implied and book value relates to Smith’s land. Paterson uses the cost method to record its investment in Smith. Its fiscal year ends on December 31. Additional information for both companies for 2020 follows: Paterson Smith Common stock...

Petunia Corporation acquired 90 percent of the stock of Spring Company on January 1, 20X2, for...

Petunia Corporation acquired 90 percent of the stock of Spring Company on January 1, 20X2, for $360,000. At that date, the fair value of the noncontrolling interest was $40,000. Spring’s balance sheet contained the following amounts at the time of the combination: Cash $ 20,000 Accounts Payable $ 25,000 Accounts Receivable 60,000 Bonds Payable 75,000 Inventory 70,000 Common Stock 100,000 Buildings and Equipment (net) 350,000 Retained Earnings 300,000 Total Assets $ 500,000 Total Liabilities & Equity $ 500,000 During...

On January 1, 2014, Trenten Systems, a U.S.-based company, purchased a controlling interest in Grant Management...

On January 1, 2014, Trenten Systems, a U.S.-based company, purchased a controlling interest in Grant Management Consultants located in Zurich, Switzerland. The acquisition was treated as a purchase transaction. The 2014 financial statements stated in Swiss francs are given below. GRANT MANAGEMENT CONSULTANTS Comparative Balance Sheets January 1 and December 31, 2014 Jan. 1 Dec. 31 Cash and Receivables 20,400 55,000 Net Property, Plant, and Equipment 40,200 37,400 Totals 60,600 92,400 Accounts and Notes Payable 29,400 32,000 Common Stock 19,700...

On January 1, 2014, Trenten Systems, a U.S.-based company, purchased a controlling interest in Grant Management...

On January 1, 2014, Trenten Systems, a U.S.-based company, purchased a controlling interest in Grant Management Consultants located in Zurich, Switzerland. The acquisition was treated as a purchase transaction. The 2014 financial statements stated in Swiss francs are given below. GRANT MANAGEMENT CONSULTANTS Comparative Balance Sheets January 1 and December 31, 2014 Jan. 1 Dec. 31 Cash and Receivables 20,000 54,400 Net Property, Plant, and Equipment 40,500 36,600 Totals 60,500 91,000 Accounts and Notes Payable 29,900 32,100 Common Stock 20,200...

On January 1, 2014, Trenten Systems, a U.S.-based company, purchased a controlling interest in Grant Management...

On January 1, 2014, Trenten Systems, a U.S.-based company, purchased a controlling interest in Grant Management Consultants located in Zurich, Switzerland. The acquisition was treated as a purchase transaction. The 2014 financial statements stated in Swiss francs are given below. GRANT MANAGEMENT CONSULTANTS Comparative Balance Sheets January 1 and December 31, 2014 Jan. 1 Dec. 31 Cash and Receivables 20,000 55,000 Net Property, Plant, and Equipment 40,000 37,000 Totals 60,000 92,000 Accounts and Notes Payable 30,000 32,000 Common Stock 20,000...

On January 1, 2010, Porter Company purchased an 80% interest in the capital stock of Salem...

On January 1, 2010, Porter Company purchased an 80% interest in the capital stock of Salem Company for $850,000. At that time, Salem Company had capital stock of $550,000 an retained earnings of $80,000. Differences between the fair value and the book value of the identifiable assets of Salem Company were as follows: Fair Value in Excess of Book Value Equipment............. $130,000 Land............. 65,000 Inventory............. 40,000 The book values of all other assets and liabilities of Salem Company were equal...

Exercise 13-4 On January 1, 2014, Trenten Systems, a U.S.-based company, purchased a controlling interest in...

Exercise 13-4 On January 1, 2014, Trenten Systems, a U.S.-based company, purchased a controlling interest in Grant Management Consultants located in Zurich, Switzerland. The acquisition was treated as a purchase transaction. The 2014 financial statements stated in Swiss francs are given below. GRANT MANAGEMENT CONSULTANTS Comparative Balance Sheets January 1 and December 31, 2014 Jan. 1 Dec. 31 Cash and Receivables 19,600 55,700 Net Property, Plant, and Equipment 39,600 36,800 Totals 59,200 92,500 Accounts and Notes Payable 30,100 32,200 Common...

Subjects