Question

Wealthy Manufacturing Company purchased 30 percent of the voting shares of Diversified Products Corporation on March 23, 20X4 On December 31, 20X8, Wealthy Manufacturing's controller attempted to prepare income statements and retained earnings statements for the two companies using the following summarized 20X8 data Net Sales Cost of Goods Sold Other Expenses Dividends Declared& Paid Retained Eamings, 1/1/X8 Wealthy Manufacturing $851, 000 669, 000 105, 000 39, 000 428, 000 Diversified Products $414, 000 314, 000 35, 000 19, 000 270, 000 Wealthy Manufacturing uses the equity method in accounting for its investment in Diversified Products. The controller was also aware of the following specific transactions for Diversified Products in 20X8, which were not included in the preceding data 1. Diversified sold its entire Health Technologies division on September 30, 20X8, for $379,000. The book value of Health Technologies division's net assets on that date was $318,000. The division incurred an operating loss of $26,000 in the first nine months of 20X8 2. During 20X8, Diversified sold one of its delivery trucks after it was involved in an accident and recorded a gain of $17,000

Answer 1

Solution:

DP income statement year ended Dec 31 2018

Particulars	Amounts	Amount
Net sales		414,00
cost of goods sold		314,000
gross profit		100,000
Other expeses	35,000
Gain on sale of truck	19,000
Income from continuing operations		16,000 84,000
Discontinued Operations:
Operating loss from discontinued operations	26,000
profit on sale of division	61,000	35,000
Income before extraordinary item		119,000
Extraordinary item loss on volcanic activity		9,000
Net Income		110,000

Retained earnings statement year ended Dec 31 20X8 (26000-17000)

Particulars	Amount
January 1, Retained earnings	270,000
Net income as on 20X8	110,000
	380,000
Declared dividends, 20X8	17,000
December 31, 20X8 Retained earnings	363,000