Question

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: Credit Scissor Company Debit $ 46,000 60,000 120,000 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 122,000 140,000 190,000 438,000 250,000 875,000 250,000 65,000 280,000 80,000 $ 565,000 77,000 250,000 625,000 280,000 800,000 93,000 $ 2,690,000 $2,690,000 125,000 250,000 155,000 12,000 50,000 25,000 $ 36,000 27,000 100,000 250,000 120,000 310,000 $843,000 $ 843,000 (Assume the company prepares the optional Accumulated Depreciation Elimination Entry.) Required: a. Prepare the journal entries on Paper's books for the acquisition of Scissor on January 1, 20X8, as well as any normal equity method entry(ies) related to the investment in Scissor Company during 20X8. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

Common stock	250,000
Retained earnings	120,000
Income from Scissors Co.	93,000
Dividend declared		25,000
Investment in scissor's Co.		438,000

PAPER COMPANY AND SUBSIDIARY
Consolidated Financial Statement Worksheet
December 31, 20X8
			Consolidated Entries
	Paper Co.	Scissor's Co	Dr.	Cr.	Consolidated
Income Statement
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 and administrative expense	280,000	50,000			330,000
Income from Scissor's	93,000		93,000
Net Income	298,000	93,000	93,000		298,000
Statement of Retained Earnings
Beginning Balance	280,000	120,000	120,000		280,000
Net Income	298,000	93,000	93,000		298,000
Less: Dividend Declared	80,000	25,000		25,000	80,000
Ending Balance	498,000	188,000	213,000	25,000	498,000
Balance Sheet
Assets
Cash	122,000	46,000			168,000
Account Receivable	140,000	60,000			200,000
Inventory	190,000	120,000			310,000
Investment in Scissor's Co.	438,000			438,000	-
Land	250,000	125,000			375,000
Building and Equipment	875,000	250,000			1,125,000
Less: Accumulated depreciation	565,000	36,000			601,000
Total Assets	1,450,000	565,000		438,000	1,577,000
Liabilities and Equity
Account Payable	77,000	27,000			104,000
Bonds Payable	250,000	100,000			350,000
Common Stock	625,000	250,000	250,000		625,000
Retained Earnings	498,000	188,000	213,000	25,000	498,000
Total Liabilities and Equity	1,450,000	565,000	463,000	25,000	1,577,000