Advanced Financial Accounting
11th Edition
ISBN: 9780078025877
Author: Theodore E. Christensen, David M Cottrell, Cassy JH Budd Advanced Financial Accounting
Publisher: McGraw-Hill Education
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Question
Chapter 4, Problem 4.33P
a.
To determine
Introduction:Investment is the asset that is acquired for the generation of income or return in the long run. Investments are used to create capital for future utilization. The
To prepare:Journal entries that Company M would record for investment in Company R.
a.
Expert Solution
Explanation of Solution
In the books of Company M:
Record consolidation:
| Date | Account | Debit ($) | Credit($) |
| 20XX | Common Stock Company R | 60,000 | |
| 40,000 | |||
| Income from Company R | 24,000 | ||
| Dividend | 16,000 | ||
| Investment in Company R Common Stock | 108,000 | ||
| (To recordconsolidation) |
Table (1)
- Common stock Company R is equity and it is decreased by $60,000. Therefore, the Common stock Company Raccount is debited with $60,000.
- Retained earnings areequity and it is decreased by $40,000. Therefore, the retained earningsaccount is debited with $40,000.
- Income from Company R is an income and it is decreased by $24,000. Therefore, income from Company R account is debited with $24,000.
- Dividend is an income and it is increased by $16,000. Therefore, the INCOME account is credited with $16,000.
- Investment in Company R common stock is an asset and it is decreased by $108,000. Therefore, Investment in Company R common stockaccount is credited with $108,000.
Record amortization excess:
| Date | Account | Debit ($) | Credit($) |
| 20XX | 2,000 | ||
| 5,500 | |||
| Investment in Company R | 7,500 | ||
| (To recordamortization excess) |
Table (2)
- Differential is an expense and it is increased by $2,000. Therefore, differentialaccount is debited with $2,000.
- Goodwill Impairment Loss is an expense and it is increased by $5,500. Therefore, the goodwill impairment lossaccount is debited with $5,500.
- Investment in Company R is income and it is increased by $7,500. Therefore, investment in Company R account is credited with $7,500.
Record excess value:
| Date | Account | Debit ($) | Credit($) |
| 20XX | Building & Equipment | 20,000 | |
| Goodwill | 2,500 | ||
| | 2,000 | ||
| Investment in Company R | 20,500 | ||
| (To record amortization amount) |
Table (3)
- Building &Equipment is an asset and it is increased by $20,000. Therefore, Building &equipmentaccount is debited with $20,000.
- Goodwill is an asset and it is increased by $2,500. Therefore, the goodwillaccount is debited with $2,500.
- Accumulated depreciation is a current liability and it is increased by $30,000. Therefore, the accumulated depreciationaccount is credited with $30,000.
- Investment in Company R is income and it is increased by $20,500. Therefore, investment in Company R account is credited with $20,500.
Record of accumulated depreciation:
| Date | Account | Debit ($) | Credit($) |
| 20XX | Accumulated depreciation | 30,000 | |
| Building & Equipment | 30,000 | ||
| (To record accumulated depreciation) |
Table (4)
- Accumulated depreciationis a current liability and it is decreased by $30,000. Therefore, the accumulated depreciationaccount is debited with $30,000.
- Building &equipment is an asset and it is decreased by $30,000. Therefore, the building &equipmentaccount is credited with $30,000.
b.
To determine
Introduction:Investment is the asset that is acquired for the generation of income or return in the long run. Investments are used to create capital for future utilization. The return obtained from investments is used in operations of the business.
To prepare:The three-part worksheet as of December 31, 20XX.
b.
Expert Solution
Explanation of Solution
Preparation of three-part worksheet:
Amount in ($)
| Company M Consolidation Work paper December 31, 20X5 | |||||
| Particulars | Company M | Company R | Elimination | Consolidation | |
| Income Statement | Debit | Credit | |||
| Sales | 260,000 | 180,000 | 440,000 | ||
| Less: | |||||
| Cost of goods sold | 125,000 | 110,000 | 235,000 | ||
| Wages | 42,000 | 27,000 | 69,000 | ||
| Depreciation | 25,000 | 10,00 | 2,000 | 37,000 | |
| Interest | 12,000 | 4,000 | 16,000 | ||
| Other expenses | 13,500 | 5,000 | 18,500 | ||
| Impairment loss | 5,500 | 5,500 | |||
| Income from Company R | 16,500 | 24,000 | 7,500 | ||
| Net Income | 59,000 | 24,000 | 31,500 | 7,500 | 59,000 |
| Statement of Retained earnings | |||||
| Beginning balance | 102,000 | 40,000 | 40,000 | 102,000 | |
| Net Income | 59,000 | 24,000 | 31,500 | 7,500 | 59,000 |
| Dividend Declared | (30,000) | (16,000) | 16,000 | (30,000) | |
| Ending Balance | 131,000 | 48,000 | 71,500 | 23,500 | 131,000 |
| Balance Sheet | |||||
| Cash | 19,500 | 21,000 | 40,500 | ||
| Accounts Receivables | 70,000 | 12,000 | 82,000 | ||
| Inventory | 90,000 | 25,000 | 115,000 | ||
| Land | 30,000 | 15,000 | 45,000 | ||
| Buildings and equipment | 350,000 | 150,000 | 20,000 | 30,000 | 490,000 |
| Less: Accumulated Depreciation | 145,000 | 40,000 | 30,000 | 2,000 | 157,000 |
| Investment in Company R | 128,500 | 108,000 | |||
| Goodwill | 2,500 | 2,500 | |||
| Total assets | 543,000 | 183,000 | 52,500 | 160,500 | 618,000 |
| Accounts payable | 45,000 | 16,000 | 61,000 | ||
| Wages Payable | 17,000 | 9,000 | 26,000 | ||
| Notes payable | 150,000 | 50,000 | 200,000 | ||
| Common stock | 200,000 | 60,000 | 60,000 | 200,000 | |
| Retained earnings | 131,000 | 48,000 | 71,500 | 23,500 | 131,000 |
| Total liabilities | 543,000 | 183,000 | 131,500 | 23,500 | 618,000 |
Table (5)
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Chapter 4 Solutions
Advanced Financial Accounting
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