Equity Method First Year Eliminations Statements

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$278,000

Prepare a determination and distribution of excess schedule for the investment in Shaw Company and determine the balance in the Investment in Shaw Company on Mast Company's books as of December 31, 20X5, under the following methods that could be used by the parent, Mast Company: simple equity, sophisticated equity, and cost.

Exercise 3 (LO 2) Equity method, first year, eliminations, statements. Pepper Company purchased an 80% interest in Salt Company for $250,000 in cash on January 1, 20X1, when Salt Company had the following balance sheet:

Assets

Current assets $100,000

Depreciable fixed assets 200,000

Total assets $300,000

Liabilities and Equity

Current liabilities $ 50,000

Common stock ($10 par) 100,000

Retained earnings 150,000

Any excess of the price paid over book value is attributable only to the fixed assets, which have a 10-year remaining life. Pepper Company uses the simple equity method to record its investment in Salt Company.

The following trial balances of the two companies were prepared on December 31, 20X1:

Pepper

Salt

Current Assets 60,000

Depreciable Fixed Assets 400,000

Accumulated Depreciation (106,000)

Investment in Salt Company 266,000

Current Liabilities (60,000)

Retained Earnings, January 1, 20X1 (200,000)

Expenses 110,000

Subsidiary Income (20,000)

Dividends Declared

Total 0

130,000 200,000 (20,000)

5,000 0

1. Prepare a determination and distribution of excess schedule for the investment.

2. Prepare all the eliminations and adjustments that would be made on the 20X1 consolidated worksheet.

3. Prepare the 20X1 consolidated income statement and its related income distribution schedules.

4. Prepare the 20X1 consolidated balance sheet.

Exercise 4 (LO 2) Equity method, second year, eliminations, statements. The trial balances of Pepper and Salt companies of Exercise 3 for December 31, 20X2, are presented as follows:

Pepper

Salt

Current Assets 152,000

Depreciable Fixed Assets 400,000

Accumulated Depreciation (130,000)

Investment in Salt Company 270,000

Current Liabilities (80,000)

Retained Earnings, January 1, 20X2 (260,000)

Expenses 160,000

Subsidiary Income (12,000)

Dividends Declared

Total 0

115,000 200,000 (40,000)

10,000 0

Pepper Company continued to use the simple equity method.

1. Prepare all the eliminations and adjustments that would be made on the 20X2 consolidated worksheet.

2. Prepare the 20X2 consolidated income statement and its related income distribution schedules.

Exercise 5 (LO 4) Sophisticated equity method, first year, eliminations, statements. (Note: Read carefully. This is not the same as Exercise 3) Pepper Company purchased an 80% interest in Salt Company for $250,000 on January 1, 20X1, when Salt Company had the following balance sheet:

Assets

Liabilities and Equity

Current assets

Depreciable fixed assets

Total assets

$100,000 Current liabilities

Retained earnings

$300,000 Total liabilities and equity

$ 50,000 100,000 150,000

$300,000

Any excess of the price paid over book value is attributable only to the fixed assets, which have a 10-year remaining life. Pepper uses the sophisticated equity method to record the investment in Salt Company.

The following trial balances of the two companies were prepared on December 31, 20X1:

Pepper

Salt

Current Assets 60,000

Depreciable Fixed Assets 400,000

Accumulated Depreciation (106,000)

Investment in Salt Company 261,000

Current Liabilities (60,000)

Retained Earnings, January 1, 20X1 (200,000)

Expenses 110,000

Subsidiary Income (from Salt Company) (15,000)

Dividends Declared

Total 0

130,000 200,000 (20,000)

5,000 0

1. If you did not solve Exercise 3, prepare a determination and distribution of excess schedule for the investment.

2. Prepare all the eliminations and adjustments that would be made on the 20X1 consolidated worksheet.

3. If you did not solve Exercise 3, prepare the 20X1 consolidated income statement and its related income distribution schedule.

4. If you did not solve Exercise 3, prepare the 20X1 consolidated balance sheet.

Exercise 6 (LO 4) Sophisticated equity method, second year, eliminations, statements. The trial balances of Pepper and Salt companies of Exercise 5 for December 31, 20X2, are presented as follows:

Pepper

Salt

Current Assets 152,000 115,000

Depreciable Fixed Assets 400,000 200,000

Accumulated Depreciation (130,000) (40,000)

Investment in Salt Company 260,000

Current Liabilities (80,000)

Retained Earnings, January 1, 20X2 (255,000) (170,000)

Expenses 160,000 85,000

Subsidiary Income (from Salt Company) (7,000)

Dividends Declared ..10,000

Total 0 0

Pepper Company continued to use the sophisticated equity method.

1. Prepare all the eliminations and adjustments that would be made on the 20X2 consolidated worksheet.

2. If you did not solve Exercise 4, prepare the 20X2 consolidated income statement and its related income distribution schedules.

Exercise 7 (LO 3) Cost method, first year, eliminations, statements. (Note: Read carefully. This is not the same as Exercise 3 or 5.) Pepper Company purchased an 80% interest in Salt Company for $250,000 in cash on January 1, 20X1, when Salt Company had the following balance sheet:

Assets

Current assets $100,000

Depreciable fixed assets 200,000

Total assets $300,000

Liabilities and Equity

Current liabilities $ 50,000

Common stock ($10 par) 100,000

Retained earnings 150,000

Any excess of the price paid over book value is attributable only to the fixed assets, which have a 10-year remaining life. Pepper Company uses the cost method to record its investment in Salt Company.

The following trial balances of the two companies were prepared on December 31, 20X1:

Pepper Salt

Current Assets 60,000 130,000

Depreciable Fixed Assets 400,000 200,000

Accumulated Depreciation (106,000) (20,000)

Investment in Salt Company 250,000

Current Liabilities (60,000) (40,000)

Retained Earnings, January 1, 20X2 (200,000) (150,000)

Expenses 110,000 75,000

Dividend Income (from Salt Company) (4,000)

Dividends Declared ..5,000

Total 0 0

1. If you did not solve Exercise 3 or 5, prepare a determination and distribution of excess schedule for the investment.

2. Prepare all the eliminations and adjustments that would be made on the 20X1 consolidated worksheet.

3. If you did not solve Exercise 3 or 5, prepare the 20X1 consolidated income statement and its related income distribution schedules.

4. If you did not solve Exercise 3 or 5, prepare the 20X1 consolidated balance sheet.

Exercise 8 (LO 3) Cost method, second year, eliminations, statements. The trial balances of Pepper and Salt companies of Exercise 7 for December 31, 20X2, are presented as follows:

Pepper

Salt

Current Assets 152,000

Depreciable Fixed Assets 400,000

Accumulated Depreciation (130,000)

Investment in Salt Company 250,000

Current Liabilities (80,000)

Retained Earnings, January 1, 20X2 (244,000)

Expenses 160,000

Dividend Income (from Salt Company) (8,000)

Dividends Declared

Total 0

115,000 200,000 (40,000)

10,000 0

Pepper Company continued to use the cost method.

1. Prepare all the eliminations and adjustments that would be made on the 20X2 consolidated worksheet.

2. If you did not solve Exercise 4 or 6, prepare the 20X2 consolidated income statement and its related income distribution schedules.

Exercise 9 (LO 5) Amortization procedures, several years. Walt Company purchased an 80% interest in Mitchell Company common stock on January 1, 20X1. Appraisals of Mitchell's assets and liabilities were performed, and Walt ended up paying an amount that was greater than the fair value of Mitchell's net assets. The following determination and distribution of excess schedule was created on December 31, 20X1, to assist in putting together the consolidated financial statements:

Determination and Distribution of Excess Schedule

Price paid for investment

Less book value interest acquired:

Common stock

Paid-in capital in excess of par

Retained earnings

Total equity

$1,100,000

$100,000 150,000 350,000 $600,000

Interest acquired

X 80%

480,000

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