Question

Price Company purchased 90% of the outstanding common stock of Score Company on January 1, 2009, for $450,000. At that time, Score Company had stockholders' equity consisting of common stock, $200,000; other contributed capital, $160,000; and retained earnings $90,000. On December 31, 2013, trial balances for Price Company and Score Company were as follows:

	Price	Score
Cash	1,09,000	78,000
Accounts recevaable	1,66,000	94,000
Note receivable	75,000	0
Inventory	3,09,000	1,58,000
Investment in score company	6,33,600	0
Plant and equipment	9,40,000	4,20,000
Land	1,60,000	70,000
Dividends declared	70,000	50,000
Cost of goods sold	8,22,000	2,42,000
Operating expenses	2,50,000	1,24,000
Total debits	35,35,100	12,36,000
Accounts payable	1,32,000	46,000
Note payable	3,00,000	1,20,000
Common stock	5,00,000	2,00,000
Other contributed capital	2,60,000	1,60,000
Retained earnings, 1/1	7,95,000	2,10,000
Sales	14,20,000	5,00,000
Equity in subsidiary income	1,20,600	0
Interest income	7,500	0
Total credits	35,35,100	12,36,000

Price Company's note receivable is receivable from Score Company. The interest of $7, 500 was paid by Score to Price during 2013. Any difference between book value and the value implied by the purchase price relates to goodwill.

Prepare a consolidated statements workpaper on December 31, 2013, under the partial equity method.

Please do not copy from Chegg. I need an orginal answer with propert explanation with step by step explanation.

Answer 1

Solution

Price Company and Subsidiary

                                                                     Consolidated Statements Workpaper

Workpaper - Equity Method                 For the Year Ended December 31, 2013

	Price Company	Score Company		Eliminating Entries	Noncontrolling Interest	Consolidated Balance
	Dr.		Cr.
Income Statement
Sales	1,420,000	500,000						1,920,000
Equity in Subsidiary Income	120,600		(1)	120,600
Interest Income	7,500		(3)	7,500
Total Revenue	1,548,100	500,000						1,920,000
Cost of Goods Sold	822,000	242,000						1,064,000
Other Expenses	250,500	124,000			(3)	7,500		367,000
Total Cost and Expense	1,072,500	366,000						1,431,000
Net Income	475,600	134,000						489,000
Noncontrolling Interest							13,400 *	(13,400)
Net Income to Retained Earnings	475,600	134,000		128,100		7,500	13,400	475,600
Retained Earnings Statement
Retained Earnings 1/1
Price Company	795,000							795,000
Score Company		210,000	(4)	210,000
Net Income from above	475,600	134,000		128,100		7,500	13,400	475,600
Dividends Declared
Price Company	(70,000)							(70,000)
Score Company		(50,000)			(1)	45,000	(5,000)
Retained Earnings 12/31	1,200,600	294,000		338,100		52,500	8,400	1,200,600

* $134,000 ´ .10 = $13,400.

	Price Company	Score Company		Eliminating Entries	Noncontrolling Interest	Consolidated Balance
	Dr.		Cr.
Balance Sheet
Cash	109,000	78,000						187,000
Accounts Receivable	166,000	94,000						260,000
Note Receivable	75,000				(2)	75,000
Inventory 12/31	309,000	158,000						467,000
Investment in Score	633,600				(4)	558,000
					(1)	75,600
Difference b/w Implied & Book Value			(4)	50,000	(5)	50,000
Plant and Equipment	940,000	420,000						1,360,000
Land	160,000	70,000						230,000
Goodwill			(5)	50,000				50,000
Total	2,392,600	820,000						2,554,000
Accounts Payable	132,000	46,000						178,000
Notes Payable	300,000	120,000	(2)	75,000				345,000
Common Stock:
Price Company	500,000							500,000
Score Company		200,000	(4)	200,000
Other Contributed Capital
Price Company	260,000							260,000
Score Company		160,000	(4)	160,000
Retained Earnings from above	1,200,600	294,000		338,100		52,500	8,400	1,200,600
Noncontrolling Interest 1/1					(4)	62,000	**   62,000
Noncontrolling Interest 12/31							70,400	70,400
Total	2,392,600	820,000		873,100		873,100		2,554,000

** $50,000 + [($210,000 – $90,000) x .10] = $62,000

                                                      

(1) To eliminate intercompany income and dividends

(2) To eliminate intercompany receivables and payables

(3) To eliminate intercompany interest expense and income

(4) To eliminate investment in Score company and create noncontrolling interest account

(5) To allocate the difference between implied and book value

                                                      

Computation and Allocation of Difference between Implied and Book Value Acquired

                                                                                        Parent            Non-          Entire

                                                                                        Share       Controlling      Value

                                                                                                             Share

Purchase price and implied value                                 450,000          50,000   500,000 *

Less: Book value of equity acquired:                           405,000          45,000      450,000

Difference between implied and book value                  45,000            5,000     50,000

Goodwill                                                                      (45,000)         (5,000)   (50,000)

Balance                                                                              - 0 -             - 0 -            - 0 -

*$450,000/.90

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