Question

Problem 4-1 On January 1, 2011, Perelli Company purchased 90,000 of the 100,000 outstanding shares of common stock of Singer Company as a long-term investment. The purchase price of $4,934,300 was paid in cash. At the purchase date, the balance sheet of Singer Company included the following: Current assets Long-term assets Other assets Current liabilities Common stock, $20 par value Other contributed capital Retained earnings $2,954,600 3,908,000 757,000 1,553,500 2,010,600 1,844,200 1,609,200 Additional data on Singer Company for the four years following the purchase are: Net income (loss) Cash dividends paid, 12/30 2011 $1,993,900 499,900 2012 $474,400 499,900 2013 ($180,500) 499,900 2014 ($327,100 ) 499,900 Prepare journal entries under each of the following methods to record the purchase and all investment-related subsequent events on the books of Perelli Company for the four years, assuming that any excess of purchase price over equity acquired was attributable solely to an excess of market over book values of depreciable assets with a remaining life of 15 years). (Assume straight-line depreciation.) (a) Your answer is partially correct. Try again. Perelli uses the cost method to account for its investment in Singer. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Date Account Titles and Explanation Debit Credit 2011 2011 Investment in Subsidiary T 4934300 4934300 cash (To record the investment) Tcash 449910

a) use the cost method for investment in singer

B)use the partial equity method to record its investment.

c)use the complete equity method to record its investment.

please do all 3 parts and show work.

c)uses the complete equity method to record its investment.

Answer 1

	2011	2012	2013	2014
	$	$	$	$
Net income	1993900	474400	-180500	-327100
Cash dividend paid	499900	499900	499900	499900
Cumulative income over/(under) dividends	1494000	1468500	788100	-38900

1. Cost method for investment in Singer:
		Debit	Credit
		$	$
2011	Investment in Singer company A/c Dr	4934300
	To Cash A/c		4934300
	Record the initial investment in Singer company
	Cash A/c Dr	449910
	To Dividend income (499900 *90%)		449910
	To record dividend received
2012	Cash A/c Dr	449910
	To Dividend income (499900 *90%)		449910
	To record dividend received
2013	Cash A/c Dr	449910
	To Dividend income (499900 *90%)		449910
	To record dividend received
2014	Cash A/c Dr	449910
	To Dividend income (499900 *90%)		411010
	To investment in Singer company		38900
	To record dividend recd of which $ 38900 represents return on investment
2. Prtial equity method for investment in Singer:
		Debit	Credit
		$	$
2011	Investment in Singer company A/c Dr	4934300
	To Cash A/c		4934300
	Record the initial investment in Singer company
	Investment in Singer company A/c Dr	1794510
	To Equity in subsidiary - income		1794510
	To record Perelli's share of subsidiary income
	Cash A/c Dr	449910
	To investment in Singer company (499900 *90%)		449910
	To record dividend received
2012	Investment in Singer company A/c Dr	426960
	To Equity in subsidiary - income		426960
	To record Perelli's share of subsidiary income
	Cash A/c Dr	449910
	To investment in Singer company (499900 *90%)		449910
	To record dividend received
2013	Equity in subsidiary - loss A/c Dr	162450
	To Investment in Singer company A/c		162450
	To record Perelli's share of subsidiary loss
	Cash A/c Dr	449910
	To investment in Singer company (499900 *90%)		449910
	To record dividend received
2014	Equity in subsidiary - loss A/c Dr	294390
	To Investment in Singer company A/c		294390
	To record Perelli's share of subsidiary loss
	Cash A/c Dr	449910
	To investment in Singer company (499900 *90%)		449910
	To record dividend received
3. Complete equity method for investment in Singer:
Networth of Singer company = Common stock + retained earnings + other contributed capital
Networth of Singer company = $ 2010600 + $ 1844200 + $ 1609200 = $ 5464000
Perelli acquired 90% of $ 5464000 = $ 4917600 for $ 4934300
So $ 4934300 - $ 4917600 = $ 16700 should be amortized over 15 years
		Debit	Credit
		$	$
2011	Investment in Singer company A/c Dr	4934300
	To Cash A/c		4934300
	Record the initial investment in Singer company
	Investment in Singer company A/c Dr	1794510
	To Equity in subsidiary - income		1794510
	To record Perelli's share of subsidiary income
	Equity in Subsidiary	1113
	To investment in Singer company ($ 16700 /15)		1113
	To adjust equity in subsidiary for excess depreciation
	Cash A/c Dr	449910
	To investment in Singer company (499900 *90%)		449910
	To record dividend received
2012	Investment in Singer company A/c Dr	426960
	To Equity in subsidiary - income		426960
	To record Perelli's share of subsidiary income
	Equity in Subsidiary	1113
	To investment in Singer company ($ 16700 /15)		1113
	To adjust equity in subsidiary for excess depreciation
	Cash A/c Dr	449910
	To investment in Singer company (499900 *90%)		449910
	To record dividend received
2013	Equity in subsidiary - loss A/c Dr	162450
	To Investment in Singer company A/c		162450
	To record Perelli's share of subsidiary loss
	Equity in Subsidiary	1113
	To investment in Singer company ($ 16700 /15)		1113
	To adjust equity in subsidiary for excess depreciation
	Cash A/c Dr	449910
	To investment in Singer company (499900 *90%)		449910
	To record dividend received
2014	Equity in subsidiary - loss A/c Dr	294390
	To Investment in Singer company A/c		294390
	To record Perelli's share of subsidiary loss
	Equity in Subsidiary	1113
	To investment in Singer company ($ 16700 /15)		1113
	To adjust equity in subsidiary for excess depreciation
	Cash A/c Dr	449910
	To investment in Singer company (499900 *90%)		449910
	To record dividend received