Question

Paper Company acquired 100 percent of Scissor Company's outstanding common stock for $370,000 on January 1, 20X8, when the book value of Scissor's net assets was equal to $370,000. Accumulated depreciation on this date was $24,000. Paper uses the equity method to account for investments. The following trial balance summarizes the financial position and operations for Paper and Scissor as of December 31, 20X9: Scissor Company Debit Credit $116,000 97,000 115,000 Cash Accounts Receivable Inventory Investment in Scissor Company Land Buildings & Equipment Cost of Goods Sold Depreciation Expense Selling & Administrative Expense Dividends Declared Accumulated Depreciation Accounts Payable Bonds Payable Common Stock Retained Earnings Sales Income from Scissor Company Total Paper Company Debit Credit 232,000 165,000 193,000 515,000 250,000 875,000 278,000 65,000 312,000 90,000 $ 630,000 85,000 150,000 625,000 498,000 880,000 107,000 $ 2,975,000 $2,975,000 125,000 250,000 178,000 12,000 58,000 30,000 $ 48,000 40,000 100,000 250,000 188,000 355,000 $981,000 $981,000 (Assume the company prepares the optional Accumulated Depreciation Elimination Entry.) Required: a. Prepare any equity method journal entry(ies) related to the investment in Scissor Company during 20X9. (If no entry is required for a transaction/event. select "No journal entry required" in the first account field.)

Answer 1

Cr Dr 3,70,000 Transaction date Accounts 2009 Investment in Scissor Co. Dr To Cash (Being 100% share purchased for Sassor Co.) 3,70,000 2009 30,000 30,000 Investment in Scissor Co. Dr To Dividend from Scissor Co. (Being Dividend assignment to investment on equity method)

PAPER COMPANY AND SUBSIDIARY Consolidated Financial Statement worksheet December 31, 20X9 Consolidated Entries Paper Co. Scissor Co.Dr a c onsolidated Particualrs Income Statement Sales Less: Cost of goods sold 8,80,000 3,55,000 -2,78,000 -1,78,000 12,35,000 -3,49,000 1,07,000 -12,000 -58,000 -77,000 -3,70,000 Less : Depreciation expenses Less: Selling & Administrative expenses Income from Scissor Co. Net Income -65,000 -3,12,000 1,07,000 3,32,000 1,07,000 1,07,000 1,07,000 1,07,000 4,39,000 Statement of Retain Earnigs Beginning balance Net income Less: Dividends declared Ending balance 1,07,000 1,07,000 4,98,000 3,32,000 90,000 7,40,000 1,88,000 1,07,000 30,000 2,65,000 6,86,000 4,39,000 1,20,000 10,05,000 1,07,000 1,07,000 1,16,000 97,000 1,15,000 3,48,000 2,62,000 3,08,000 5,15,000 Balance sheet Assets Cash Account receivable Inventory investment in Scissor Co. Land Building & Equipment Less: Accumulated depreciation Total Assets Liability & Equity Account Payable Bonds payable Comman stock Retained earnings Total Liability & Equity 2,32,000 1,65,000 1,93,000 5,15,000 2,50,000 8,75,000 -6,30,000 16,00,000 1,25,000 2,50,000 -48,000 6,55,000 3,75,000 11,25,000 -6,78,000 17,40,000 5,15,000 85,000 1,50,000 6,25,000 7,40,000 16,00,000 40,000 1,00,000 2,50,000 2,65,000 6,55,000 2,50,000 2,65,000 5,15,000 1,25,000 2,50,000 6,25,000 7,40,000 17,40,000