CHAPTER 4

EXERCISES

1. Python Corporation buys 80 percent of Shark Company on January 1, 2013, for $150,000. At the
time, Shark’s common stock was $100,000 and retained earnings totaled $80,000. It was determined
that Shark’s assets and liabilities were all at their fair value except for land. The trial balances of
Python and Shark on December 31, 2013, are listed below.

Python Corporation Shark Company

Debit Credit Debit Credit
Cash $ 25,000 $ 10,000
Receivables (net) 10,000 11,000
Inventory, January 1 15,000 9,000
Investment in S 150,000
Plant and equipment (net 225,000 185,000
Land 100,000 80,000
Accounts payable $ 24,000 $ 10,000
Other liabilities 80,000 100,000
Common stock ($10 par) 250,000 100,000
Retained earnings, January 1 135,000 80,000
Dividends declared 15,000 20,000
Sales 130,000 75,000
Dividend income 16,000
Purchases 55,000 25,000
Expenses 40,000 ________ 25,000 ________
$635,000 $635,000 $365,000 $365,000

Inventory, December 31 $12,000 $10,000

A. Find the difference between implied and book value

B. Record the entries in Python’s books to reflect its transactions with Shark in 2013, assuming
the cost method.
To record initial investment

To record P’s share of S’s dividends

C. Prepare the workpaper entries on December 31, 2013

To eliminate P’s share of S’s equity
Study Guide to accompany Jeter and Chaney, Advanced Accounting

To allocate the difference between implied and book value

To eliminate P’s share of S’s dividends

2. The December 31, 2012, trial balances for Python Corporation and its subsidiary Shark are listed
below.
Python Corporation Shark Company
Debit Credit Debit Credit
Cash $ 30,000 $ 8,000
Receivables (net) 13,000 12,000
Inventory, 1/1 12,000 10,000
Investment in S 150,000
Plant and equipment (net) 250,000 195,000
Land 100,000 80,000
Accounts payable $ 30,000 $ 10,000
Other liabilities 85,000 100,000
Common stock ($10 par) 250,000 100,000
Retained earnings, 1/1 168,000 84,000
Dividends declared 15,000 20,000
Sales 131,000 91,000
Dividend income 16,000
Purchases 60,000 30,000
Other expenses 50,000 _______ 30,000 _______
$680,000 $680,000 $385,000 $385,000

Inventory, 12/31 $15,000 $12,000

A. Prepare the journal entries found on Python’s books for 2012

To record P’s share of S’s dividends

B. Prepare the workpaper entries for 2012

To establish reciprocity (convert to equity)

To eliminate P’s share of S’s equity

To allocate the difference between implied and book value

To eliminate P’s share of S’s dividends

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 CHAPTER 4 – Consolidated Financial Statements after Acquisition

3. Python Corporation buys 80 percent of Shark Company on January 1, 2013, for $150,000. At the
time, Shark’s common stock was $100,000 and its retained earnings were $80,000. It was determined
that Shark’s assets and liabilities were all at their fair value except for land. The trial balances of
Python and Shark on December 31, 2013, are listed below.

Python Corporation Shark Company

Debit Credit Debit Credit
Cash $ 25,000 $ 10,000
Receivables (net) 10,200 11,000
Inventory, 1/1 15,000 9,000
Investment in S 154,600
Plant & Equipment (Net) 225,000 185,000
Land 100,000 80,000
Accounts Payable $ 24,000 $ 10,000
Other Liabilities 80,000 100,000
Common Stock ($10 par) 250,000 100,000
Retained Earnings, 1/1 135,000 80,000
Dividends Declared 15,000 20,000
Sales 130,000 75,000
Equity in S Income 20,800
Purchases 55,000 25,000
Expenses 40,000 _______ 25,000 ________
$639,800 $639,800 $365,000 $365,000

Inventory, 12/31 $12,000 $10,000

A. Prepare the journal entries found on Python’s books for 2013. Python uses the partial equity method
of accounting for the combination.
To record P’s investment in S Company

To record P’s share of S Company’s income

To record P’s share of S Company’s dividends

B. Prepare the workpaper entries for 2013

To eliminate P’s share of S Company’s equity

To allocate the difference between implied and book value

To eliminate P’s share of S Company’s income and dividends

4-3
Study Guide to accompany Jeter and Chaney, Advanced Accounting

4. The December 31, 2012, trial balances for Python Corporation and its subsidiary Shark Company are
listed below.
Python Corporation Shark Company
Debit Credit Debit Credit
Cash $ 30,000 $ 8,000
Receivables (net) 12,800 14,000
Inventory, 1/1 12,000 10,000
Investment in S 165,400
Plant & Equipment (Net) 250,000 195,000
Land 100,000 80,000
Accounts Payable $ 30,000 $ 10,000
Other Liabilities 85,000 100,000
Common Stock ($10 par) 250,000 100,000
Retained Earnings, 1/1 172,800 86,000
Dividends Declared 15,000 20,000
Sales 131,000 91,000
Equity in S Income 26,400
Purchases 60,000 30,000
Other Expenses 50,000 _______ 30,000 _______
$695,200 $695,200 $387,000 $387,000

Inventory, 12/31 $15,000 $12,000

A. Prepare the journal entries found on Python’s books for 2012. Python uses the partial equity method
of accounting for the combination.
To record P’s share of S’s income

To record P’s share of S’s dividends

B. Prepare the workpaper entries for 2012.

To eliminate P’s share of S’s equity

To allocate the difference between implied and book value

To eliminate P’s share of S’s income and dividends

4-4
CHAPTER 4 – Consolidated Financial Statements after Acquisition

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