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On 1/1/20, Coke Co. paid $2,800,000 to acquire all of the common stock of Dodo Corp....

On 1/1/20, Coke Co. paid $2,800,000 to acquire all of the common stock of Dodo Corp. On that date, Dodo's equity included $1,000,000 capital stock and $1,600,000 of retained earnings. An appraisal of Dodo's assets identified a patent that had a market value of $140,000 and a life of 5 years that was unrecorded. Dodo's reported earnings for 2020 totaled $512,000 and it paid $160,000 of dividends during the year. The amortization of allocations related to the investment was $28,000. Coke's net income, not including the investment, was $3,310,000, and it paid dividends of $950,000.

Assuming that you are consolidating trial balances on 12/31/20, what consolidation worksheet entries should Coke make to eliminate the investment account? You do not need to allocate the differential.

Solutions

Expert Solution

1.)Statement of net asset as on date of acquisition
1/1/2020
share capital 1000000
retained earning 1600000
Patent unrecorede 140000
Total net asset acquired 2740000
2.) calculation of good will /GBP
INVEstEment 2800000
LESS: asset acquired -2740000
GOODWILL 60000
At the time of consolidation entry
NET assset acquired a/c ….dr 2740000
Good will a/c DR 60000
                      to bank 2800000
Adjustement for earning made durning year by dodo
Earning 512000
Dividend paid -160000
Balance profit 352000
share of coke in profit 28000
there fore coke will increase investement by 28000 in his book
Divened entry will be cancelled in consolidated account because in dodo its is in debit of p&l account and in coke it is credit of p&l account

ekkarill92 answered 2 years ago
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