Question

On January 1, 2007, Hebron, Inc. purchased 75 percent of the outstanding stock of Jasper, Inc. for $1 million. At the date of acquisition Jasper's common stock and retained earnings account balances were $500,000 and $700,000, respectively. The market value of Jasper's net assets were equal to their book values with the exception of equipment which had a market value that was $50,000 greater than its book value. The equipment had a remaining economic value of 5 years. During 2007, Jasper reported net income of $300,000, and paid dividends of $30,000.   During 2008 Jasper reported net income of $400,000, comprehensive income of $420,000, and dividends of $40,000.

Required: Prepare all elimination entries needed in a three-part workpaper to prepare the year 2008 consolidated financial statements, assuming that Hebron uses the equity method to account for its investment in Jasper.

  

Answer 1

1. Income from subsidiary 217500

To Dividends 22500

To Investment in Jasper 195000

2. Income to non controlling interests 75000

To Dividends 7500

To non controlling interest 67500

3. Common stock-Jasper inc. 500000

Retained Earnings-Jasper 700000

Differential 100000

To Investment in Jasper 1000000

To non controlling interest 300000

4. Equipment 37500

Goodwill 62500

To Differential 100000

5. Depreciation Expense 7500

To Accumulated depreciation 7500

6.Other comprehensive income-unrealized 15000

To Gain in investments 15000

7.Other comprehensive income to non controlling interest 5000

To non controlling interests 5000