Accounting Assignment Final
2148517
act_505_8_answer_key.pdf
Master Corporation acquired 80 percent ownership of Stanley Wood Products Company
on January 1, 20X1, for $160,000. On that date, the fair value of the noncontrolling
interest was $40,000, and Stanley reported retained earnings of $50,000 and had
$100,000 of common stock outstanding. Master has used the equity method in accounting
for its investment in Stanley.
Trial balance data for the two companies on December 31, 20X5, are as follows:
.:.
Additional Information
1. On the date of combination, the fair value of Stanley’s depreciable assets was $50,000
more than book value. The differential assigned to depreciable assets should be written
off over the following 10-year period.
2. There was $10,000 of intercorporate receivables and payables at the end of 20X5.
Required
a. Give all journal entries that Master recorded during 20X5 related to its investment in
Stanley.
b. Give all elimination entries needed to prepare consolidated statements for 20X5.
c. Prepare a three-part worksheet as of December 31, 20X5.
SOLUTION:
a.
Equity Method Entries on Master Corp.'s Books:
Investment in Stanley Wood Co.
24,000
Income from Stanley Wood Co.
24,000
Record Master Corp.'s 80% share of Stanley Wood Co.'s 20X5
income
Cash
8,000
Investment in Stanley Wood Co.
8,000
Record Master Corp.'s 80% share of Stanley Wood Co.'s 20X5
dividend
Income from Stanley Wood Co.
4,000
Investment in Stanley Wood Co.
4,000
Record amortization of excess acquisition price
b.
Book Value Calculations:
NCI
20% +
Master Corp.
80% =
Common
Stock +
Retained
Earnings
Beginning book 38,000
152,000
100,000
90,000
value
+ Net Income 6,000
24,000
30,000
- Dividends (2,000)
(8,000)
(10,000)
Ending book value 42,000
168,000
100,000
110,000
1/1/X5
Goodwill = 0
Identifiable
Excess = 24,000
$176,000
Net
investment
in Stanley
Wood Co.
80%
Book value =
152,000
12/31/X5
Goodwill = 0
Identifiable
Excess = 20,000 $188,000
Net
investment
in Stanley
Wood Co.
80%
Book value =
168,000
Basic elimination entry
Common stock
100,000
Retained earnings
90,000
Income from Stanley Wood Co.
24,000
NCI in NI of Stanley Wood Co.
6,000
Dividends declared 10,000
Investment in Stanley Wood Co. 168,000
NCI in NA of Stanley Wood Co. 42,000
Excess Value (Differential) Calculations:
NCI
20% +
Master Corp.
80% =
Buildings &
Equipment +
Acc.
Depr.
Beginning
balance 6,000
24,000
50,000
(20,000)
Changes (1,000)
(4,000)
(5,000)
Ending balance 5,000
20,000
50,000
(25,000)
Amortized excess value reclassification entry:
Depreciation expense 5,000
Income from Stanley Wood Co. 4,000
NCI in NI of Stanley Wood Co. 1,000
Excess value (differential) reclassification entry:
Buildings & Equipment 50,000
Accumulated Depreciation
25,000
Investment in Stanley Wood Co.
20,000
NCI in NA of Stanley Wood Co.
5,000
Eliminate intercompany accounts:
Accounts payable 10,000
Cash and receivables 10,000
Investment in
Income from
Stanley Wood
Co.
Stanley Wood
Co.
Beginning
Balance
176,000
80% Net Income
24,000
24,000
80% Net
Income
8,000 80% Dividends
4,000
Excess Val.
Amort. 4,000
Ending Balance
188,000
20,000 Ending Balance
168,000 Basic 24,000
20,000 Excess Reclass.
4,000 Amort. Reclass.
0 0
c.
Master
Corp.
Stanley
Wood
Co.
Elimination Entries
DR CR Consolidated
Income Statement
Sales 200,000 100,000 300,000
Less: COGS (120,000) (50,000) (170,000)
Less: Depreciation
Expense (25,000) (15,000) 5,000 (45,000)
Less: Inventory Losses (15,000) (5,000) (20,000)
Income from Stanley
Wood Co. 20,000 24,000 4,000 0
Consolidated Net Income 60,000 30,000 29,000 4,000 65,000
NCI in Net Income 6,000 1,000 (5,000)
Controlling Interest in Net 60,000 30,000 35,000 5,000 60,000
Income
Statement of Retained Earnings
Beginning Balance 314,000 90,000 90,000 314,000
Net Income 60,000 30,000 35,000 5,000 60,000
Less: Dividends Declared (30,000) (10,000) 10,000 (30,000)
Ending Balance 344,000 110,000 125,000 15,000 344,000
Balance Sheet
Cash and Receivables 81,000 65,000 10,000 136,000
Inventory 260,000 90,000 350,000
Land 80,000 80,000 160,000
Buildings & Equipment 500,000 150,000 50,000 700,000
Less: Accumulated
Depreciation (205,000) (105,000) 25,000 (335,000)
Investment in Stanley
Wood Co. 188,000 168,000 0
20,000
Total Assets 904,000 280,000 50,000 223,000 1,011,000
Accounts Payable 60,000 20,000 10,000 70,000
Notes Payable 200,000 50,000 250,000
Common Stock 300,000 100,000 100,000 300,000
Retained Earnings 344,000 110,000 125,000 15,000 344,000
NCI in NA of Stanley
Wood Co. 42,000 47,000
5,000
Total Liabilities & Equity 904,000 280,000 235,000 62,000 1,011,000
