Question

In: Accounting

Problem I. On January 1, 2019, P Corp acquired 80% of the outstanding common stock of...

Problem I. On January 1, 2019, P Corp acquired 80% of the outstanding common stock of S Corp for $820,000 cash. On that date, S Company’s stockholders’ equity consisted of common stock, $150,000; other contributed capital, $200,000; and retained earnings, $350,000. P Corp paid more than the book value of net assets acquired because the recorded cost of S Corp’s equipment (5 year remaining useful life) was $40,000 less than its fair value; the remainder was allocated to goodwill. There were acquisition related costs of $40,000 at the date of acquisition.

During 2019 S Corp earned $240,000 and declared and paid a $80,000 dividend. P Corp used the equity method to record its investment in S Corp. In addition, P Corp sold (transferred) $100,000 of goods to S Corp on account. The goods cost P Corp $60,000. At the end of 2019, approximately $20,000 of the transfer remains unsold.

During 2020 S Corp earned $280,000 and declared and paid a $90,000 dividend. The unsold goods from 2019 were all sold to 3rd parties. In addition, P Corp. sold (transferred) $120,000 of goods to S Corp on account. The goods cost P Corp $90,000. At the end of 2020, approximately $30,000 of the transfer remains unsold.

1-. Prepare the journal entries on P Corp’s books to record S Corp’s income and dividends during 2020, as well as any other necessary journal entries during the year.

2-Prepare the worksheet entries at December 31, 2020

Solutions

Expert Solution

Date Particulars Debit $ Credit $
31-12-2020 Investment in S Corp account $224,000
Share of Income from S Corp account $224,000
(80% of income received from S Corp i.e.
80% of $2,80,000 recognised as income)
31-12-2020 Cash $ 72,000
Investment in S Corp account $ 72,000
(80% of dividend $90,000 received from
S Corp recognized)
31-12-2020 Investment in S Corp account $    6,400
Share of Income from S Corp account $    6,400
(Gross profit on unsold goods at the end of
2019 which was unrealized at that time and
realized in 2020 after-sale to 3rd parties
recognized. $20,000* 40% GP * 80% share)
31-12-2020 Share of Income from S Corp account $    6,000
       Investment in S Corp account $    6,000
(Unrealized gross profit on $30,000 sales to
S Corp which remained unsold on year-end
reversed $30,000* 25% GP* 80% share)
Investment in S Corp account
31-12-2020 Share of Income from S Corp account $224,000 31-12-2020 Cash $ 72,000
31-12-2020 Share of Income from S Corp account $    6,400 31-12-2020 Share of Income from S Corp account $    6,000
31-12-2020 Balance c/f $152,400
$230,400 $230,400
Share of Income from S Corp account
31-12-2020 Investment in S Corp account $    6,000 31-12-2020 Investment in S Corp account $224,000
31-12-2020 Balance c/f $224,400 31-12-2020 Investment in S Corp account $    6,400
$230,400 $230,400
Cash Account
31-12-2020 Investment in S Corp account $ 72,000 31-12-2020 Balance c/f $ 72,000

Related Solutions

On January 1, 2012, P Corp acquired 80% of the outstanding common stock of S Corp for $820,000. On January 1, 2018, P Corp sold $120,000 of land to S Corp for cash.
  On January 1, 2012, P Corp acquired 80% of the outstanding common stock of S Corp for $820,000. On January 1, 2018, P Corp sold $120,000 of land to S Corp for cash. The cost of the land was $50,000 at the date of the transfer. Also on January 1, 2018, P Corp transferred equipment to S Corp for $20,000 cash. The equipment originally cost $26,000 and has a book value of $15,000 (three-year remaining useful life). During 2019,...
On January 1, 2019, Monica Company acquired 80 percent of Young Company’s outstanding common stock for...
On January 1, 2019, Monica Company acquired 80 percent of Young Company’s outstanding common stock for $888,000. The fair value of the noncontrolling interest at the acquisition date was $222,000. Young reported stockholders’ equity accounts on that date as follows: Common stock—$10 par value $ 300,000 Additional paid-in capital 70,000 Retained earnings 630,000 In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $90,000. Any remaining...
On January 1, 2019, Monica Company acquired 80 percent of Young Company’s outstanding common stock for...
On January 1, 2019, Monica Company acquired 80 percent of Young Company’s outstanding common stock for $776,000. The fair value of the noncontrolling interest at the acquisition date was $194,000. Young reported stockholders’ equity accounts on that date as follows: Common stock—$10 par value $ 200,000 Additional paid-in capital 70,000 Retained earnings 490,000 In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $70,000. Any remaining...
On January 1, 20X1, Pride, Inc. acquired 80% of the outstanding voting common stock of Strong...
On January 1, 20X1, Pride, Inc. acquired 80% of the outstanding voting common stock of Strong Corp. for $364,000. On this date, equipment (with a five-year life) was undervalued on Strong's books by $35,000. Any remaining excess was attributable to goodwill. As of December 31, 20X1, the financial statements appeared as follows: Pride Strong Revenues $420,000 $280,000 Cost of Goods Sold 196,000 112,000 Operating Expenses 28,000 14,000 Investment Income 100,800 Net Income $296,800 $154,000 Retained Earnings, 1/1/20X1 $420,000 $210,000 Net...
Hamza Inc. acquired all of the outstanding common stock of Ali Corp. on January 1, 2016,...
Hamza Inc. acquired all of the outstanding common stock of Ali Corp. on January 1, 2016, for $372,000. Equipment with a ten-year life was undervalued on Ali's financial records by $46,000. Hamza also owned an unrecorded customer list with an assessed fair value of $67,000 and an estimated remaining life of five years. Ali Co. earned reported net income of $180,000 in 2016 and $216,000 in 2017.  Dividends of $70,000 were paid in each of these two years.  Selected account balances as...
Exceed, a US company, on January 1, 2019 acquired all the outstanding common stock of Silver...
Exceed, a US company, on January 1, 2019 acquired all the outstanding common stock of Silver Company, which is located in a country whose currency is the peso. The peso is the functional currency of Silver. For 2019, exchange rates for the peso were as follows: Peso 1 = Jan. 1 $0.39 Dec. 31 $0.32 Average for the year $0.35          Notes: Read carefully and follow strictly so that Bb can grade you correctly! 1. Use comma in numbers, one...
7) P Company owns 80% of the outstanding common stock of S Company. On January 1....
7) P Company owns 80% of the outstanding common stock of S Company. On January 1. 2018, S Company sold land to P Company for OMR 500,000. S Company originally purchased the land for OMR 300,000. On January 1, 2019, P Company Sold the land purchased from S Company to a company outside the affiliated group for OMR 600,000. A. Prepare the journal entry of intercompany sales. B. Prepare in general journal form the workpaper entries necessary because of the...
Pointure Company acquired 80 percent of Souby Company’s outstanding common stock for $664,000 on January 1,...
Pointure Company acquired 80 percent of Souby Company’s outstanding common stock for $664,000 on January 1, 2019, when the book value of Souby’s net assets was equal to $830,000. Pointure uses the equity method to account for investments. Trial Balance items for Pointure and Souby as of December 31, 2019, are as follows: Pointure Souby Debit Credit Debit Credit Cash 125,000 70,000 Accounts Receivable 396,000 90,000 Inventory 450,000 200,000 Investment in Souby 868,000 Plant & Equipment 755,000 585,000 Other Assets...
On January 1, 2016, Monica Company acquired 80 percent of Young Company’s outstanding common stock for...
On January 1, 2016, Monica Company acquired 80 percent of Young Company’s outstanding common stock for $728,000. The fair value of the noncontrolling interest at the acquisition date was $182,000. Young reported stockholders’ equity accounts on that date as follows: Common stock—$10 par value $ 300,000 Additional paid-in capital 70,000 Retained earnings 430,000 In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $70,000. Any remaining...
On January 1, 2016, Monica Company acquired 80 percent of Young Company’s outstanding common stock for...
On January 1, 2016, Monica Company acquired 80 percent of Young Company’s outstanding common stock for $728,000. The fair value of the noncontrolling interest at the acquisition date was $182,000. Young reported stockholders’ equity accounts on that date as follows: Common stock—$10 par value $ 300,000 Additional paid-in capital 70,000 Retained earnings 430,000 In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $70,000. Any remaining...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT