Question

Question Information:

Peanut Company acquired 90 percent of Snoopy Company's outstanding common stock for $270,000 on January 1, 20X8, when the book value of Snoopy's net assets was equal to $300,000. Problem 3-27 summarizes the first year of Peanut's ownership of Snoopy. Peanut uses the equity method to account for investments. The following trial balance summarizes the financial position and operations for Peanut and Snoopy as of December 31, 20x9: Cash Accounts Receivable Inventory Investment in Snoopy Company Land Buildings & Equipment Cost of Goods Sold Depreciation Expense S&A Expense Dividends Declared Accumulated Depreciation Accounts Payable Bonds Payable Common Stock Retained Earnings Sales Income from Snoopy Company Total Peanut Company Debit Credit $ 255,000 190.000 180,000 364,500 200,000 700,000 270,000 50,000 230,000 225,000 $ 500,000 75,000 150,000 500,000 517.500 850,000 72.000 $2,664,500 $2,664,500 Snoopy Company Debit Credit $ 75,000 80,000 100,000 0 100,000 200,000 150,000 10,000 60,000 30,000 $ 30,000 35,000 85.000 200.000 155.000 300,000 $805,000 $805.000

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Answer 1

Solution:

Book Value Calculations co, Beginning Book Value Add: Net Income (80000) Less: Dividends (30000) Ending Book Value Peanut Common Retained NCI Stock Earnings 10% 90% 35500 319500 200000 155000 8000 72000 80000 -3000 -27000 -30000 40500 364500 200000 205000

200000 155000 Basic Consolidation Entry Common Stock Retained Earnings Income from Snoopy Company NCI in NI of Snoopy Company Dividends Declared Investment in Snoopy Company NCI IN NA of Snoopy Company 72000 8000 30000 364500 40500

Peanut Snoopy Debit Credit Consolidated Sales 850000 1150000 -270000 300000 - 150000 -10000 -420000 -50000 -60000 -60000 -230000 72000 372000 -290000 0 72000 72000 80000 0 8000 Less: COGS Less: Depreciation Expense Less: Selling and Admin Expense Income from Snoopy Consolidated Net Income NCI Net Income Controlling interest in Net income Statement of Retained earning: Beginning Balance Net Income Less Dividend declared Ending Balance 380000 -8000 372000 372000 80000 80000 0 517500 517500 372000 155000 80000 372000 155000 80000 -30000 205000 -225000 -225000 30000 30000 664500 235000 664500 255000 330000 270000 190000 Assets: Cash Accounts Receivable Inventory Investment in Snoopy Land Building and Equipment Less: Acc Dep Total Assets 280000 0 364500 180000 364500 200000 700000 75000 80000 100000 0 100000 200000 -30000 525000 300000 890000 10000 10000 -520000 -500000 1389500 10000 374500 1550000 75000 35000 150000 85000 Liabilities and Equity: Accounts Payable Bonds Payable Common Stock Retained Earnings NCI in net asset of Snoopy Total Liabilities and Equity 110000 235000 500000 200000 500000 664500 200000 205000 235000 30000 664500 40500 40500 70500 1389500 525000 435000 1550000