Question

P2-23 Consolidated Worksheet at End of the First Year of Ownership (Equity Method) Peanut Company acquired 100 percent of Snoopy Company's outstanding common stock for $300,000 on January 1, 20X8, when the book value of Snoopy's net assets was equal to $300,000. Peanut uses the equity method to account for investments. Trial balance data for Peanut and Snoopy as of December 31, 20X8, are as follows: $130,000 $80,000 165,000 200,000 355,000 65,000 75,000 Income Statement Sales AR Inventory Investment in snoopy stock land Buildings & Equipment Cost of Goods sold Depreciation expenses S&A Expense Dividends Declared Accumulated Depreciation AP Bonds Payable Common Stock Retained Earnings Sales 200,000 700,000 200,000 50,000 225,000 100,000 100,000 200,000 125,000 10,000 40,000 20,000 $450,000 20,000 60,000 75,000 200,000 85,000 200,000 500,000 225,000 800,000 75,000 100,000 250,000 Income from Snoopy Total $2,325,000 2,325,000 $ 715,000 $715,000 Required a. Prepare the journal entries on Peanut's books for the acquisition of Snoopy on January 1, 20X8, as well as any normal equity-method entry(ies) related to the investment in Snoopy Company during 20X8. b. Prepare a consolidation worksheet for 20X8 in good form.

Answer 1

Above question is about acquisition and their related entries and preparation of a consolidation worksheet . Refer below images for more detailed solution.

Solution : Requirement Equity : Method Journal entries Entries on peanut col's Books: DY * co- alo. Dr $ 300000 particolars Investment in Snoopy To cash Ak (Being to record the on Snoopy co.) $ 300000 initial investment $75000 $75000 Investment in Snoopy co tle or To Income from Snoopy co. (Being to record peanut os noot- Share of Snoopy co's 20x8 income) 20000 Cash ale or 20000 To investment in Snoopy co. (Being to record peanut tots 100t. Share of Snoopy co's 20x8 dividend). Requirement Book value calcolations & Retained particolars Total Book value common stoge earnings Beginning book value $200000 $ 100 000 $ 75000 (+) Net income (6) Dividends $300000 $ 75000 $(2000) (0000) 200 000 $ 155000 Ending book value $355000

12/31/x8 Goodwill ao Goodwill zo Identifiable excess o $ 300 000 Identifiable excess to Initial $355000 Nek investment in Snoopy co. Book value = CstRE investment an Snoopy co. Book valve = CSARE $35 5000 = $ 300000 * Basic elimination entry : or er particolars 200 000 $ 100 000 75000 common stock Alc DV Retained earnings All Dr Income from Snoopy Akor To Dividends declared To investment in Snoppy co. 820000 * elimination entry: optional accomolated depreciation particolars DY & 10000 Accumulated depreciation Al Dr To Building y equipment $10000

* The amount of this entry is found by looking at the depreciation expense (10000) for the year and acomulated deprecation at the end of the year ($20ooo). The difference most be what was in accumulated depreciation at the date of acquisition. Note that disposals of this assumes there were building es equipment no Saly during (or the other year. Dr Investment in Snoopy co. Acajoisition $300000 price Net income $ 75000 $20000 Dividends Ending balance $3.55000 $365000 Basic Income from Sncopy co. ar $ 75000 Net income $75000 Ending balance. Basic $75000

* DOT particulars Peanut Snoopy CO. Elimination Entries Consolidated (C. CY Income Statement : Sales Less; cous Less: Depreciation exp Less & other expenses Income from Snoopy co Net income 900000 $200000) $ (5000) $(225000) $75000 $ 400 000 a 50000 $(ta.scoo) $ (10ooo) $ (40000) $ 150 000 $ (325000) $ (60000) $ (akooo) $76000 $75000 475000 1 400000 Statement of Retained Earnings : Beginning balance Net income Less: Dividends declared $225.000 $ 400 000 & (100 000) $100000 $ 75000 ($20000) $100 000 $75000 . $225.000 $400000 ($100000) $20000 $525000 Ending balance $ 155000 $15000 12000 120000 $20000 $525000 $210 000 $ 400OC $ 5000 $ 75000 230000 $ 275000 Balance sheet : cash 130000 Accoonts Receivable $165000 Enventory $ 200 000 Investment in Snoopy to $ 35 00 200 000 Buildings y equipment 1 700 000 Less Accomolated depreciation $(460000) Total Assets $ 1300000 1353000 Land 100000 $ 200 000 (90000) & 500000 - $10000 loooo $10000 $365000 $ 300000 $ 990000 $460000) $1445000 27 Accounts payable Bonds payable common stock Retained earnings $ 75.000 200000 $ 500 000 $525ooo $60000 95 000 $ 200 boo $ 155000 $200000 $175000 $20000 $375000 $20.000 $135000 $295000 500ooo $525000 $1445000 Tocal liabitties y equity $ 1300000 $500000