Question

Paper Company acquired 80 percent of Scissor Company’s outstanding common stock for $296,000 on January 1, 20X8, when the book value of Scissor’s net assets was equal to $370,000. Paper uses the equity method to account for investments. Trial balance data for Paper and Scissor as of December 31, 20X8, are as follows:

	Paper Company									Scissor Company
	Debit				Credit					Debit				Credit
Cash		$	191,000								$	46,000
Accounts Receivable			140,000									60,000
Inventory			190,000									120,000
Investment in Scissor Company			350,400									0
Land			250,000									125,000
Buildings and Equipment			875,000									250,000
Cost of Goods Sold			250,000									155,000
Depreciation Expense			65,000									12,000
Selling & Administrative Expense			280,000									50,000
Dividends Declared			80,000									25,000
Accumulated Depreciation							565,000									36,000
Accounts Payable							77,000									27,000
Bonds Payable							250,000									100,000
Common Stock							625,000									250,000
Retained Earnings							280,000									120,000
Sales							800,000									310,000
Income from Scissor Company							74,400									0
Total		$	2,671,400			$	2,671,400				$	843,000			$	843,000
a. Prepare any equity method entry(ies) related to the investment in Scissor Company during 20X8 b. Prepare a consolidation worksheet for 20X8. Assume the company prepares the optional Accumulated Depreciation Consolidation Entry

Answer 1

Part A

Date	Accounts title	Debit	Credit
1	Investment in Scissor	74,400
	Income from Scissor		74,400
	(To record income from equity investment.) (93000*80%)
2	Cash	20,000
	Investment in Scissor		20,000
	(To record dividend received.) (25000*80%)

Part B

Consolidation work paper
			Elimination entries
	Paper Company	Scissor Company	Debit	Credit	Consolidation
Sales	800,000	310,000			1,110,000
Less: Cost of Goods Sold	(250,000)	(155,000)			(405,000)
Less: Depreciation Expense	(65,000)	(12,000)			(77,000)
Less: Selling & Administrative Expense	(280,000)	(50,000)			(330,000)
Add: Income from Scissor Co	74,400	-	74,400		-
Net income	279,400	93,000	74,400	-	298,000
Net income in NCI			18,600
Retained Earnings, 1/1	280,000	120,000	120,000		280,000
Net income	279,400	93,000	93,000	-	279,400
Less: Dividends Declared	(80,000)	(25,000)		25,000	(80,000)
Retained Earnings, 31/12	479,400	188,000	213,000	25,000	479,400
Assets
current assets
Cash	191,000	46,000			237,000
Accounts Receivable	140,000	60,000			200,000
Inventory	190,000	120,000			310,000
Non-current assets
Investment in Scissor Company	350,400			350,400	-
Land	250,000	125,000			375,000
Plant and Equipment	875,000	250,000			1,125,000
Accumulated Depreciation	(565,000)	(36,000)			(601,000)
total assets	1,431,400	565,000			1,646,000
liability and equity
Liabilities
Accounts Payable	77,000	27,000			104,000
Bonds Payable	250,000	100,000			350,000
stock holder's equity
Common Stock	625,000	250,000	250,000		625,000
Retained Earnings, 31/12	479,400	188,000	213,000	25,000	479,400
non controlling interest				87,600	87,600
Total liability and equity	1,431,400	565,000			1,646,000
Journal entries			463,000	463,000