Question

mmon Consolidated Worksheet at End of the First Year of Ownership (Equity Method) On January 1, 2009, Zigma Company acquired 100 percent of Standard Company's com shares at underlying book value. Zigma uses the equity method in accounting for its ownership of Standard. On December 31, 20X9, the trial balances of the two companies are as follows: Zigma Co Standard Co. Debit Credit Debit Credit Current Assets $238,000 $95,000 Depreciable Assets 300,000 170,000 Investment in Standard Co. 100,000 Other Expenses 90,000 70,000 Depreciation Expense 30,000 17,000 Dividends Declared 32,000 10,000 Accumulated Depreciation $120,000 $ 85,000 Current Liabilities 50,000 30,000 Long-Term Debt 120,000 50,000 Common Stock 100,000 50,000 Retained Earnings 175,000 35,000 Sales 200,000 112,000 Income from Standard Co. 25,000 Total $790,000 $790,000 $362,000 $362,000 Required: a. Prepare the journal entries on Zigma's books for the acquisition of Standard on January 1,20x9 as well as any normal equity method entry (ies) related to the investment in Standard Company during 20x9. b. Prepare the consolidation entries needed as of December 31, 2009, to complete a consolidation worksheet. c. Prepare a three-part consolidation worksheet as of December 31, 20X9. a. Equity Method Entries on Zigma Co.'s Books: Record the initial investment in Standard Co. Record Zigma Co.'s 100% share of Standard Co.'s 20X9 income Record Zigma Co.'s 100% share of Standard Co.'s 20X9 dividend

Answer 1

ANSWER -

a. Acquisition entry in the books of zigma for the year of 2009.

DATE	PARTICULARS	DEBIT $	CREDIT $
1.	current assets A/c    Dr. Depreciable Assets A/c Dr. To Current liabilities Alc To long term debt A/c (being standard company on book value basis)	95000 85000	80,000 1,00,000
2.	Standard Company Alc Dr. To bank A/c ( being amount purchase consideration is paid to standard company )	1,00,000	1,00,000

B.  Calculation of profit of zigma Company.

	ZIGMA COMPANY.	STD. COMPANY
SALES	$ 2,00,000	$ 1,12,000
Less- other expenses	( 90,000 )	( 70,000 )
depreciation	( 30,000 )	( 17,000 )
dividend paid	( 32,000 )	( 10,000 )
TOTAL	$ 48,000	$ 15,000
Add- dividend received	$ 10,000	---

NET INCOME

$ 58,000

$ 15,000

{ Journal entry in the books of zigma -}

Bank A/c Dr. To dividend income a/c ( being dividend recevied )

10,000

10,000

• CONSOLIDATED PROFIT AND LOSS OF ZIGMA COMPANY -

Retained earning opening = $1,75,000

Add- profit during the year = $ 58,000

     profit share from std. company = $ 15,000  

• TOTAL RETAINED EARNING = $ 248,000

• C. CONSOLIDATED BALANCESHEET OF ZIGMA COMPANY.

For the year of 20X9

	$	$
SHAREHOLDER FUND
EQUITY	1,00,000
RETAINED EARNING ( 175000+58000+15000 )	2,48,000
LONG TERM DEBT ( 120,000 + 50,000 )	1,70,000
CURRENT LIABILITIES	80,000
TOTAL ( A)		5,98,000

ASSETS
FIXED ASSET ( 180,000+85,000 )	2,65,000
INVESTMENT IN STANDARD COMPANY	1,00,000
CURRENT ASSETS ( 238000+95000-100000 )	2,33,000

TOTAL ( B )

5,98,000

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