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Mami SA contributes $170,000 cash and Nasrin Company brings in net assets valued at $170,000 to...

Mami SA contributes $170,000 cash and Nasrin Company brings in net assets valued at $170,000 to form Mazda Inc. Mami, SA and Nasrin Company each receive 50 percent equity interest in Mazda Inc. The financial statements of Mazda Inc. for its first year of operations are as follows:

Mazda Inc.

Income Statement

YEAR 1

______________________________________________________________________________

Revenues                                 $80,000

Expenses                                 50,000

                                                                                  ________

Income before tax                   30,000

Tax Expense                           10,000

                                                                                 ________

Net Income                             $20,000

                                                                                 ________

Mazda Inc.

Balance Sheet

December 31, Year 1

______________________________________________________________________________

Cash                            $40,000                                   Liabilities                    $60,000

Inventory                    60,000

Property, Plant, and                                                    Common Stock           340,000

Equipment (net)          320,000                                   Retained Earnings          20,000

                                  _________                                                                    ________

Total Assets                $420,000                                                                     $420,000

                                  _________                                                                    ________

Mami SA’s financial statements for the year ended December 31, Year 1 and before making any accounting entries related to its investment in Mazda, Inc., are as follows:

Mami SA

Income Statement for Year 1

______________________________________________________________________________

Revenues                                 $800,000

Expenses                                 450,000

                                                                                  ________

Income before tax                   350,000

Tax Expense                           100,000

                                                                                 ________

Net Income                            $250,000

                                                                                 ________

Mami SA

Balance Sheet for the year ended on December 31, Year 1

______________________________________________________________________________

Cash                            $130,000                                 Liabilities                    $250,000

Inventory                    200,000

Property, Plant, and                                                    Common Stock              600,000

Equipment (net)            650,000                                 Retained Earnings          300,000

Investment in

Mazda Inc. (at cost)    170,000

                                  ___________                                                                __________

Total Assets                $1,150,000                                                                  $1,150,000

                                  ___________                                                                __________

Restate Mami, SA’s Year 1 financial statements to properly account for its investment in Mazda Inc. under the proportionate consolidation method and equity method.

Solutions

Expert Solution

Equity Method
Income Statement - Year 1

Revenues                                                         $800,000
Expenses                                                           450,000
Income before tax                                             350,000
Tax Expense                                                     100,000
Net Income                                                      $250,000
Share of Profit of Mazda Inc.                            10000   (50%)
Total Net Income                                           260000

Balance Sheet for the year ended on December 31, Year 1
Cash                            $130,000                                 Liabilities                    $250,000
Inventory                    200,000
Property, Plant, and                                                    Common Stock              600,000
Equipment (net)            650,000                                 Retained Earnings          310,000
Investment in
Mazda Inc.                 180,000
                                  ___________                                                                __________

Total Assets                $1,160,000                                                                  $1,160,000

Proportionate Consolidation Method

Income Statement - Year 1
Revenues                                                         $840,000
Expenses                                                           475,000
Income before tax                                             365,000
Tax Expense                                                     110,000
Net Income                                                      $260,000

Balance Sheet for the year ended on December 31, Year 1
Cash                            $150,000                                 Liabilities                    $280,000
Inventory                    230,000
Property, Plant, and                                                    Common Stock              770,000
Equipment (net)            810,000                                 Retained Earnings          310,000
Investment in
Mazda Inc.(at Cost)        170,000
                                  ___________                                                                __________
Total Assets                $1,360,000                                                                  $1,360,000

ekkarill92 answered 1 year ago
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