accounts data bank

| August 14, 2017

7.
On January 1, 20X1, Prism Company purchased 7,500
shares of the common stock of Sight Company for $495,000. On this date, Sight
had 20,000 shares of $10 par common stock authorized, 10,000 shares issued and
outstanding. Other paid-in capital and retained earnings were $200,000 and
$300,000 respectively. On January 1, 20X1, any excess of cost over book value
is due to a patent, to be amortized over 15 years.

Sight’s
net income and dividends for two years were:

……………………………

Net income

20X1

20X2

$50,000

$80,000

Dividends…………………………….

10,000

20,000

In
November, 20X1, Sight Company also declared a 10% stock dividend at a time when
the market price of its common stock was $50 per share. The stock dividend was
distributed on December 31, 20X1.

For both
20X1 and 20X2, Prism Company has accounted for its investment in Sight using
the cost method.

During 20X1, Sight Company sold goods to Prism Company for
$40,000, of which $10,000 was on hand on December 31, 20X1. During 20X2, Sight
sold goods to Prism for $60,000 of which $15,000 was on hand on December 31,
20X2. Sight’s gross profit on intercompany sales is 40%.

Required:

Complete the Figure 8-4 worksheet for consolidated financial
statements for 20X2.

8-17

8-18

Chapter 8

8.
On January 1, 20X1, Parent Company purchased 8,000
shares of the common stock of Subsidiary Company for $350,000. On this date,
Subsidiary had 20,000 shares of $5 par common stock authorized, 10,000 shares
issued and outstanding. Other paid-in capital and retained earnings were
$150,000 and $200,000 respectively. On January 1, 20X1, any excess of cost over
book value is due to a patent, to be amortized over 15 years. Subsidiary’s net
income and dividends for two years were:

……………………………

Net income

20X1

20X2

$50,000

$90,000

Dividends…………………………….

10,000

30,000

On January
1, 20X2, Subsidiary Company sold an additional 2,000 shares of common stock to
one individual for $50 per share. The shares were not issued in a public
offering.

On this
date, Parent Company recorded the following entry on its books as a result of
its change in percentage ownership of Subsidiary Company.

Jan. 1 Investment in Subsidiary Company…

8,000

Other Paid-in Capital…………

8,000

To record increase in ownership

interest

For both
20X1 and 20X2, Parent Company has correctly applied the simple equity method.

In the last
quarter of 20X2, Subsidiary Company sold goods to Parent Company for $40,000. Subsidiary’s
usual gross profit on intercompany sales is 40%. On December 31, $7,500 of
these goods are still in Parent’s ending inventory.

Required:

Complete
the Figure 8-5 worksheet for consolidated financial statements for 20X2.

8-19

Chapter
8

8-20

Chapter 8

9.
On January 1, 20X1, Parent Company purchased 8,000
shares of the common stock of Subsidiary Company for $350,000. On this date,
Subsidiary had 20,000 shares of $5 par common stock authorized, 10,000 shares
issued and outstanding. Other paid-in capital and retained earnings were
$150,000 and $200,000 respectively. On January 1, 20X1, any excess of cost over
book value is due to a patent, to be amortized over 15 years. Subsidiary’s net income
and dividends for 2 years were:

……………………………

Net income

20X1

20X2

$50,000

$90,000

Dividends…………………………….

10,000

30,000

On January
1, 20X2, Subsidiary Company sold an additional 2,000 shares of common stock to
one individual for $50 per share. The shares were not issued in a public
offering.

For both
20X1 and 20X2, Parent Company has correctly applied the cost method.

In the last
quarter of 20X2, Subsidiary Company sold goods to Parent Company for $40,000.
Subsidiary’s usual gross profit on intercompany sales is 40%. On December 31,
$7,500 of these goods are still in Parent’s ending inventory.

Required:

Complete
the Figure 8-6 worksheet for consolidated financial statements for 20X2.

8-22

Chapter 8

10.
On January 1, 20X1, Parent Company purchased 9,000
shares of the common stock of Subsidiary Company for $405,000. On this date,
Subsidiary had 20,000 shares of $5 par common stock authorized, 10,000 shares
issued and outstanding. Other paid-in capital and retained earnings were
$150,000 and $200,000 respectively. On January 1, 20X1, any excess of cost over
book value is due to a patent, to be amortized over 15 years. Subsidiary’s net
income and dividends for two years were:

……………………………

Net income

20X1

20X2

$50,000

$80,000

Dividends…………………………….

10,000

20,000

On January
1, 20X2, Subsidiary Company sold an additional 2,000 shares of common stock for
$50 per share. The shares were not issued in a public offering. Parent
purchased 1,200 shares of the new issue, and one individual purchased the other
800.

On this
date, Parent Company recorded the following entries on its books for the
purchase and as a result of its change in percentage ownership of Subsidiary
Company.

Jan. 1

Investment in
Subsidiary Company…….

60,000

Other Paid-in Capital…………….

60,000

To record purchase of 1,200 shares

Jan. 1

Investment in
Subsidiary Company…….

3,000

Other Paid-in Capital…………….

3,000

To record increase in
ownership

interest

For both
20X1 and 20X2, Parent Company has correctly applied the simple equity method.

In the last
quarter of 20X2, Subsidiary Company sold goods to Parent Company for $40,000.
Subsidiary’s usual gross profit on intercompany sales is 40%. On December 31,
$10,000 of these goods are still in Parent’s ending inventory.

Required:

Complete
the Figure 8-7 worksheet for consolidated financial statements for 20X2.

8-23

Chapter
8

8-24

Chapter 8

11.
On January 1, 20X1, Parent Company purchased 80% of
the common stock of Sub-One Company for $87,000. On this date, Sub-One had
common stock, other paid-in capital, and retained earnings of $10,000, $20,000,
and $60,000 respectively.

On January
1, 20X2, Parent Company purchased 90% of the common stock of Sub-Two Company
for $73,500. On this date, Sub-Two had common stock, other paid-in capital, and
retained earnings of $5,000, $30,000, and $40,000 respectively.

Any excess of cost over book value on either purchase is due to
the patent, to be amortized over 15 years.
For both 20X1 and 20X2, Parent has accounted for both
subsidiaries using the simple equity method.
On July 1,
20X2, Sub-One sold used equipment to Sub-Two. The equipment had a cost of $50,000
and accumulated depreciation of $20,000. The sale price was $36,000. During the
last half of 20X2, Sub-Two used the equipment, depreciating it over five years
using the straight-line method.

During 20X2, Sub-Two sold merchandise to Sub-One for $10,000, of
which $5,000 is still held by Sub-One on December 31, 20X2. Sub-Two’s gross
profit was 40%.

Required:

Complete the Figure 8-8 worksheet for consolidated financial
statements for 20X2.

8-25

Chapter
8

8-26

Chapter 8

12.
On January 1, 20X1, Parent Company purchased 90% of
the common stock of Sub-A Company for $90,000. On this date, Sub-A had common
stock, other paid-in capital, and retained earnings of $10,000, $20,000, and
$60,000 respectively.

On January
1, 20X2, Sub-A Company purchased 80% of the common stock of Sub-B Company for
$68,000. On this date, Sub-B Company had common stock, other paid-in capital,
and retained earnings of $5,000, $30,000, and $40,000 respectively.

Any excess of cost over book value on either purchase is due to
a patent, to be amortized over ten years.
Both Parent and Sub-A have accounted for their investments using
the simple equity method.
During 20X2, Sub-B sold merchandise to Sub-A for $20,000, of
which one-fourth is still held by Sub-B on December 31, 20X2. Sub-B’s usual
gross profit is 40%. During 20X3, Sub-B sold more goods to Sub-A for $30,000,
of which $10,000 is still on hand on December 31, 20X3.

Required:

Complete the Figure 8-9 worksheet for consolidated financial
statements for 20X3.

8-27

DIF: D OBJ: 4

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