a.
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:
a.
Explanation of Solution
Record elimination of beginning investment balance:
Date | Account | Debit ($) | Credit($) |
20X8 | Common Stock Company R | 60,000 | |
Retained earnings | 40,000 | ||
Income from Company R | 24,000 | ||
Dividend income | 16,000 | ||
Investment in company R | 108,000 | ||
(To record elimination of beginning investment balance) |
Table (1)
- Common stock Company R is equity and it is decreased by $60,000. Therefore, Common stock Company R account is debited with $60,000.
- Retained earnings are equity and it is decreased by $40,000. Therefore, Retained earnings account 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 income is an income and it is increased by $16,000. Therefore, Dividend income account is credited with $16,000.
- Investment in Company R is an asset and it is decreased by $108,000. Therefore, Investment in Company R account is credited with $108,000.
Record amortizes excess value:
Date | Account | Debit ($) | Credit($) |
20X8 | 2,000 | ||
5,500 | |||
Income from Company R | 7,500 | ||
(To record amortize excess value) |
Table (2)
- Depreciation is an expense and it is increased by $2,000. Therefore, Depreciation account is debited with $2,000.
- Goodwill Impairment Loss is an expense and it is increased by $5,500. Therefore, Goodwill Impairment Loss account is debited with $5,500.
- Income from Company R is an income and it is increased by $7,500. Therefore, income from Company R account is credited with $7,500.
Record amortizes excess value:
Date | Account | Debit ($) | Credit($) |
20X8 | Building & Equipment | 20,000 | |
Goodwill | 2,500 | ||
| 2,000 | ||
Income from Company R | 20,500 | ||
(To record amortize excess value) |
Table (3)
- Building & Equipment is an asset and it is increased by $20,000. Therefore, Building & Equipment account is debited with $20,000.
- Goodwill is an asset and it is increased by $2,500. Therefore, Goodwill account is debited with $2,500.
- Accumulated Depreciation is a current liability and it is increased by $2,000. Therefore, the Accumulated Depreciation account is credited with $2,000.
- Income from Company R is an income and it is increased by $20,500. Therefore, income from Company R account is credited with $20,500.
Record optional accumulated depreciation:
Date | Account | Debit ($) | Credit($) |
20X8 | Accumulated depreciation | 30,000 | |
Building & Equipment | 30,000 | ||
(To record optional accumulated depreciation) |
Table (4)
- Accumulated Depreciation is a current liability and it is decreased by $30,000. Therefore, the Accumulated Depreciation account is debited with $30,000.
- Building & Equipment is an asset and it is decreased by $30,000. Therefore, Building & Equipment account is credited with $30,000.
b.
Introduction: Investment is the asset that is acquired for the generation of income or return in the long run. Investments are used to create capital for future utilization. The return obtained from investments is used in operations of the business.
To prepare: The three-part worksheet as of December 31, 20X8.
b.
Explanation of Solution
Preparation of three-part worksheet:
Amount in ($)
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 | ||
Cost of Goods Sold | (125,000) | (110,000) | (235,000) | ||
Wages Expenses | (42,000) | (27,000) | (69,000) | ||
Depreciation | (25,000) | (10,000) | 2,000 | (37,000) | |
Interest | (12,000) | (4,000) | (16,000) | ||
Other expense | (13,500) | (5,000) | (18,500) | ||
Impairment loss | 5,500 | (5,500) | |||
Income from Roller Company | 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 |
Accumulated Depreciation | (145,000) | (40,000) | 30,000 | 2,000 | (157,00) |
Investment in Company R | 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 (1)
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Chapter 4 Solutions
Advanced Financial Accounting
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