Nama : Firda Arfianti

NIM : 2301949596

Kelas : LC53

SESI 6 – ADVANCED ACCOUNTING

Equity Method, Two Consecutive Years

Kerjakan PROBLEM 4-12, halaman 185, Parker Company dan Sid Company

ANSWER:

PROBLEM 4-12 Equity Method, Two Consecutive Years

On January 1, 2017, Parker Company purchased 90% of the outstanding common stock of Sid
Company for $180,000. At that time, Sid’s stockholders’ equity consisted of common stock,
$120,000; other contributed capital, $20,000; and retained earnings, $25,000. Assume that any
difference between book value of equity and the value implied by the purchase price is attributable
to land. On December 31, 2017, the two companies’ trial balances were as follows:

Parker Sid

Cash $ 65,000 $ 35,000

Accounts Receivable 40,000 30,000

Inventory 25,000 15,000

Investment in Sid Company 184,500 —0—

Plant and Equipment 110,000 85,000

Land 48,500 45,000

Dividends Declared 20,000 15,000

Cost of Goods Sold 150,000 60,000

Operating Expenses 35,000 15,000

Total Debits $678,000 $300,000

Accounts Payable $ 20,000 $ 15,000

Other Liabilities 15,000 25,000

Common Stock, par value $10 200,000 120,000

Other Contributed Capital 70,000 20,000

Retained Earnings, 1/1 55,000 25,000

Sales 300,000 95,000

Equity in Subsidiary Income 18,000 —0—

 Total Credits $678,000 $300,000

Required:

A. Prepare a consolidated statements workpaper on December 31, 2017.

Answer:

Parker Company and Subsidiary

Consolidated Statements Workpaper
For the Year Ended December, 2017
Parker Sid Eliminating Entries Noncontrolling Consolidated
Company Company Interest Balance
Dr. Cr.
Income Statement
Sales 300,000 95,000 395,000
Equity in Subsidiary Income 18,000 (1) 18,000
Total Revenue 318,000 95,000 395,000
Cost of Goods Sold 150,000 60,000 210,000
Operating Expenses 35,000 15,000 50,000
Total Cost and Expense 185,000 75,000 260,000
Net Income 133,000 20,000 135,000
Noncontrolling Interest 2,000* (2,000)
Net Income to Retained 133,000 20,000 18,000 2,000 133,000
Earnings

Retained Earnings Statement

Retained Earnings 1/1
Parker Company 55,000 55,000
Sid Company 25,000 (2) 25,000
Net Income from above 133,000 20,000 18,000 2,000 133,000
Dividends Declared
Parker Company (20,000) (20,000)
Sid Company (15,000) (1) 13,500 (1,500)
Retained Earnings 12/31 168,000 30,000 43,000 13,500 500 168,000

Balance Sheet
Cash 65,000 35,000 100,000
Accounts Receivable 40,000 30,000 70,000
Inventory 12/31 25,000 15,000 40,000
Investment in Sid Company 184,500 (1) 4,500
(2) 180,000
Difference h/w Implied & Book (2) 35,000 (3) 35,000
Value
Plant and Equipment 110,000 85,000 195,000
Land 48,500 45,000 (3) 35,000 128,500
Total 473,000 210,000 533,500
Accounts Payable 20,000 15,000 35,000
Other Liabilities 15,000 25,000 40,000
Common Stock
Parker Company 200,000 200,000
Sid Company 120,000 (2)
Other Contributed Capital
Parker Company 70,000 70,000
Sid Company 20,000 (2) 20,000
Retained Earnings from above 168,000 30,000 43,000 13,500 500 168,000
Noncontrolling Interest 1/1 (2) 20,000 20,000
Noncontrolling Interest 12/31 20,500 20,500
473,000 210,000 253,000 253,000 533,500
*($20,000 x 0.10) = $2,000

(1) To eliminate intercompany dividends and income

(2) To eliminate investment in Sid Company and create noncontrolling interest account
(3) To allocate the difference between implied and book value

Computation and Allocation of Difference between Implied and Book Value Acquired

Parent Non-Controlling Entire

Share Share Value
Purchase price and implied value 180,000 20,000 200,000*
Less: Book value of equity acquired: 148,500 16,500 165,000
Difference between implied and book value 31,500 3,500 35,000
Undervalued land (31,500) (3,500) (35,000)
Balance -0- -0- -0-
*$180,000/0.90

B. Prepare a consolidated statements workpaper on December 31, 2018, assuming trial balances for
Parker and Sid on that date were:

Parker Sid

Cash $ 70,000 $ 20,000

Accounts Receivable 60,000 35,000

Inventory 40,000 30,000

Investment in Sid Company 193,500 —0—

Plant and Equipment 125,000 90,000

Land 48,500 45,000

Dividends Declared 20,000 15,000

Cost of Goods Sold 160,000 65,000

Operating Expenses 35,000 20,000

Total Debits $752,000 $320,000

Accounts Payable $ 16,500 $ 16,000

Other Liabilities 15,000 24,000

Common Stock, par value $10 200,000 120,000

Other Contributed Capital 70,000 20,000

 Retained Earnings, 1/1 168,000 30,000

Sales 260,000 110,000

Equity in Subsidiary Income 22,500 —0—

Total Credits $752,000 $320,000

Answer:

Parker Company and Subsidiary

Consolidated Statements Workpaper
For the Year Ended December, 2018
Parker Sid Eliminating Entries Noncontrolling Consolidated
Company Company Interest Balance
Dr. Cr.
Income Statement
Sales 260,000 110,000 370,000
Equity in Subsidiary Income 22,500 (1) 22,500
Total Revenue 282,500 110,000 370,000
Cost of Goods Sold 160,000 65,000 225,000
Operating Expenses 35,000 20,000 55,000
Total Cost and Expense 195,000 85,000 280,000
Net Income 87,500 25,000 90,000
Noncontrolling Interest 2,500* (2,500)
Net Income to Retained Earnings 87,500 25,000 22,500 2,500 87,500

Retained Earnings Statement

Retained Earnings 1/1
Parker Company 168,000 168,000
Sid Company 30,000 (2) 30,000
Net Income from above 87,500 25,000 22,500 2,500 87,500
Dividends Declared
Parker Company (20,000) (20,000)
Sid Company (15,000) (1) 13,500 (1,500)
Retained Earnings 12/31 235,500 40,000 52,500 13,500 1,000 235,500

Balance Sheet
Cash 70,000 20,000
Accounts Receivable 60,000 35,000
Inventory 12/31 40,000 30,000
Investment in Sid Company 193,500 (1) 9,000
(2) 184,500
Difference h/w Implied & Book (2) 35,000 (3) 35,000
Value
Plant and Equipment 125,000 90,000 215,000
Land 48,500 45,000 (3) 35,000 128,500
Total 537,000 220,000 598,500
Accounts Payable 16,500 16,000 35,000
Other Liabilities 15,000 24,000 40,000
Common Stock
Parker Company 200,000 200,000
 Sid Company 120,000 (2) 120,000
Other Contributed Capital
Parker Company 70,000 70,000
Sid Company 20,000 (2) 20,000
Retained Earnings from above 235,500 40,000 52,500 13,500 1,000 235,000
Noncontrolling Interest 1/1 (2) 20,500 **20,500
Noncontrolling Interest 12/31 21,500 21,500
537,000 220,000 262,500 262,500 598,500
*($25,000 x 0.10) = $2,500; **$20,000 + [($30,000 - $25,000) x 0.10] = $20,500

(1) To eliminate intercompany dividends and income

(2) To eliminate investment in Sid Company and create noncontrolling interest account
(3) To allocate the difference between implied and book value