Problem 3-6 (LO 2) Equity method, 80% interest, worksheet, statements. Sandin Company prepares the following balance sheet on January 1, 20X1:
Assets Liabilities and Equity
|
Current assets . . . . . . . . . . . . . .
|
$ 50,000
|
Liabilities . . . . . . . . . . . . . . . . . . . . .
|
$140,000
|
|
Land. . . . . . . . . . . . . . . . . . . . . .
|
75,000
|
Common stock ($10 par). . . . . . . . .
|
100,000
|
|
Buildings . . . . . . . . . . . . . . . . . .
|
350,000
|
Paid-in capital in excess of par . . . .
|
120,000
|
|
Assets
|
|
Liabilities and Equity
|
|
|
Accumulated depreciation- buildings . . . . . . . . . . . . . . . .
|
(140,000)
|
Retained earnings (de?cit). . . . . . . .
|
(25,000)
|
|
Total assets. . . . . . . . . . . . . . .
|
$ 335,000
|
Total liabilities and equity . . . . . .
|
$335,000
|
On this date, Prescott Company purchases 8,000 shares of Sandin Company's outstanding stock for a total price of $270,000. Also on this date, the buildings are understated by $40,000 and have a 10-year remaining life. Any remaining discrepancy between the price paid and book value is attributed to goodwill. Since the purchase, Prescott Company has used the simple equity method to record the investment and its related income.
Prescott Company and Sandin Company prepare the following separate trial balances on December 31, 20X2:
|
Prescott
|
|
Sandin
|
|
Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
180,000
|
|
115,000
|
|
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
150,000
|
|
75,000
|
|
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
590,000
|
|
350,000
|
|
Accumulated Depreciation-Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
(265,000)
|
|
(182,000)
|
|
Investment in Sandin Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
294,000
|
|
|
|
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
(175,000)
|
|
(133,000)
|
|
Common Stock ($10 par) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
(200,000)
|
|
(100,000)
|
|
Paid-In Capital in Excess of Par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
(120,000)
|
|
Retained Earnings, January 1, 20X2. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
(503,000)
|
|
15,000
|
|
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
(360,000)
|
|
(120,000)
|
|
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
179,000
|
|
50,000
|
|
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
120,000
|
|
45,000
|
|
Subsidiary Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
(20,000)
|
|
|
|
Dividends Declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
10,000
|
|
5,000
|
|
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
0
|
|
0
|
1. Prepare a value analysis and a determination and distribution of excess schedule for the investment.
2. Prepare the 20X2 consolidated worksheet. Include columns for the eliminations and adjust- ments, the consolidated income statement, the NCI, the controlling retained earnings, and the consolidated balance sheet. Prepare supporting income distribution schedules.
3. Prepare the 20X2 consolidated statements including the income statement, retained earn- ings statement, and the balance sheet.