Question

［Ⅱ］Python Corporation buys 80 percent of Shark Company on January 1, 2013, for $150,000. At the time, Shark’s common stock was $100,000 and retained earnings totaled $80,000. It was determined that Shark’s assets and liabilities were all at their fair value except for land. The trial balances of Python and Shark on December 31, 2013, are listed below.

Python Corporation   Shark Company

Debit            Credit             Debit          Credit

     Cash $ 25,000 $ 10,000

     Receivables (net) 10,000                               11,000

     Inventory, January 1 15,000                                 9,000

     Investment in S 150,000

     Plant and equipment (net) 225,000 185,000

     Land                               100,000                               80,000

     Accounts payable                             $ 24,000                         $ 10,000

     Other liabilities                                    80,000                             100,000

     Common stock ($10 par)                      250,000                             100,000

     Retained earnings, January 1                 135,000                              80,000

     Dividends declared            15,000                               20,000

     Sales                                                130,000     75,000

     Dividend income                                 16,000

     Purchases                         55,000                               25,000

     Expenses   40,000 ________   25,000 ________

$635,000       $635,000        $365,000      $365,000

     Inventory, December 31   $12,000                            $10,000

A. Find the difference between implied and book value

B. Record the entries in Python’s books to reflect its transactions with Shark in 2013, assuming the cost method.

To record initial investment
To record P’s share of S’s dividends

C. Prepare the workpaper entries on December 31, 2013

To eliminate P’s share of S’s equity
To allocate the difference between implied and book value
To eliminate P’s share of S’s dividends

Answer 1

Answer:

B. Record the entries in Python’s books to reflect its transactions with Shark in 2013, assuming the cost method:

To Record Intial Investment:

Date	Particulars	Debit	Credit
01-Jan-13	Investment In Shark Company A/c	$ 1,50,000
	To Cash A/c		$ 1,50,000
	(Being Acquistion of Shark Company Recognized)

To Record P's Share of S's Dividends:

Date	Particulars	Debit	Credit
01-Dec-13	Cash A/c	$    16,000
	TO Dividend Income A/c		$    16,000
	(Being Dividend Income Recognised)

C. Prepare the workpaper entries on December 31, 2013:

To Eliminate P's SHare of S's Equity:

Date	Particulars	Debit	Credit
01-Dec-13	Common Stock A/c - Shark ( $1,00,000 * 80%)	$    80,000
	Retained Earnings A/c on 1st Jan - 2013 - Shark ($80,000 * 80%)	$    64,000
	To Investment in Shark Company a/c - Python		$ 1,44,000
	(Being P's Share of S's Equity Eliminated)

To allocate the difference between implied and book value:

Date	Particulars	Debit	Credit
01-Dec-13	Land A/c - Shark Company	$       7,500
	To Non Controlling Interest A/c ( $7,500 - $6,000)		$       1,500
	To Investment in Shark Company a/c		$       6,000
	(Being Difference between Book Valu and Implied Value Accomodated)

To Eliminate P's Share of S's Dividends:

Date	Particulars	Debit	Credit
01-Dec-13	Dividend Income A/c - Python	$ 16,000
	To Dividend Declared A/c - Shark		$ 16,000
	(Being P's Share of S's Dividend Eliminated)

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