Chapter-05 Math Solution

E4-3 Differential assigned to copyrights.
Journal entries recorded by Best Corporation:

20X7
Particulars Dr. Cr.
Investment in Flair Company Stock 6,94,000
Cash 24,000
Bonds payable 6,70,000
(Record Purchase of Flair Company stock)
Cash 24,000
Investment in Flair Company Stock 24,000
(Record dividend from flair company )
Income from Flair Company 88,000
(Record equity method loss)
Amortize differential:
Book value of assets $7,40,000
Book value of liabilities (1,40,000)
Net book value $6,00,000
Land fair value increment 16,000
Fair value of net assets $6,16,000
Amount paid 6,94,000
Differential $78,000
Period of amortization (years) / 8
Amortization per period $9,750
20X8
Particulars Dr. Cr.
Cash 24,000
(Record dividend from flair company )
Investment in Flair Company Stock 1,20,000
Income from Flair Company 1,20,000
(Record equity method income)
(amortize differential)
E4-4 Differential Attributable to Depreciable Assets
a. Journal entries recorded by Capital Corporation using the equity method:
20X4
Particulars Dr. Cr.
Investment in Cook Company Stock 3,40,000
Cash 3,40,000
(Record Purchase of Cook Company stock)
Cash 6,000
Investment in Cook Company Stock 6,000
(Record dividend from Cook company )
Income from Cook Company 10,000
(Amortize differential: (3,40,000-3,00,000)/10
years)
20X5
Cash 9,000
(Amortize differential)
b. Journal entries recorded by Capital Corporation using the cost method

20X4
Particulars Dr. Cr.
Investment in Cook Company Stock 3,40,000
Cash 3,40,000
(Record Purchase of Cook Company stock)
Cash 6,000
Dividend income 6,000
20X5
Cash 9,000
E4-5 Investment Income

Brindle Company reported equity –method income of $52,000 computed as follows:
Proportionate share of reported income $68,000
Amortization of differential::
Land ($1,08,000 : not amortized) $0
Equipment ($80,000/5 years) 16,000
Goodwill ($0: not amortized) 0 (16,000)
Investment Income $52,000
Assignment of differential
Purchase Price $6,84,000
Proportionate share of book value of net assets
($6,90,000-$2,30,000) (4,60,000)
Differential $1,88,000
Differential assigned to land (1,08,000)
Differential assigned to equipment (80,000)
Differential assigned to goodwill $0
E4-6 Determination of Purchase Price

Investment account balance December 31, 20X6 $1,61,000
Increase in account balance during 20X5:
Proportionate share of income $33,000
Amortize differential ($28,000 / 8 years) (3,500)
Dividend received (15,000) (14,500)
Decrease in account balance during 20X6:

Proportionate share of income $6,000
Amortize differential ($28,000 / 8 years) (3,500)
Dividend received (12,000) 9,500
Investment account balance at date of purchase $1,56,000
E4-7 Correction Error

Required correcting entry:
Investment in case product stock 44,000
Income from case product 30,000
Retained earning 22,000
Computation of correction of investment account

Addition to account for investment income:
20X6: $16,000 $16,000
20X7: $24,000 24,000
20X8: $32,000 32,000 $72,000
Deduction for dividend received:
20X6: $6,000 $6,000
20X7: $8,000 8,000
20X8: $8,000 8,000 (22,000)
Amortization of differential:
Purchase price $56,000
Proportionate share of book value of net assets
($10,000+ $30,000) (40,000)
Amount of differential $,16000
Amortization for 3 years [(16,000 / 8) x 3] (6,000)
Required correction of investment account $44,000
Computation of correction of retained earnings of Grand Corporation:

Dividend income recorded in 20X6 : $6,000 $6,000
20X7 : $8,000 8,000 ($14,000)
Equity method income in 20X6: ($16,000-$2,000) $14,000
20X7: ($24,000-$2,000) 22,000 36,000
Required correction of retained earnings $22,000
E4-8 Differential assigned to Land and Equipment

Journal entries recorded by Rod Corporation:
Investment in Stafford Corporation Stock 65,000
Cash 65,000
(Record purchase of Stafford stock)
Cash 4,500
(Record dividend from Stafford)
Income from Stafford 12,000
Income from Stafford 1,000
(Amortization differential assigned to equipment)
E4-9 Equity entries with goodwill

Journal entries recorded following purchase:
Investment in Turner Corporation Stock 4,37,500
Cash 4,37,500
(Record purchase of Turner stock)
Cash 3,200
Investment in Turner Corporation Stock 3,200
(Record dividend from Turner)
Investment in Turner Corporation Stock 16,000
Income from Turner Corporation 16,000
Income from Turner Corporation stock 10,000
Investment in Turner Corporation 10,000
(Write off differential assigned to inventory carried on FIFO
basis)
Income from Turner Corporation stock 9,000
Investment in Turner Corporation 9,000
(Amortization differential assigned to buildings equipment)
E4-13 Balance sheet Consolidation

Equity method entries on Reed corp.’s books:
Investment in Throne corp. 3,95,000
Cash 3,95,000
Book Value Calculations:

Total book value = Common stock + Retained Earning
Original Book Value 3,60,000 1,20,000 2,40,000
1/1/X4
Goodwill= 19,000
Identifiable excess= 16,000 ($3,95,000 initial investment in Throne corp.)
100% book value= 3,60,000
Basic Elimination Entry

Common stock 1,20,000
Retained Earning 2,40,000
Excess value (differential) calculation:

Total = Buildings + Inventory + Goodwill
Balances 35,000 (20,000) 36,000 19,000
Excess value (differential) reclassification entry:

Inventory 36,000
Goodwill 19,000
Buildings 20,000
Investment in Throne corp. 35,000
Investment in Throne corp.

Acquisition Price = 3,95,000 [ 3,60,000 basics & 35,000 excess re class]
E4-14 Acquisition with Differential
a. Goodwill is $60,000 computed as follows:
Book value of Conger’s net assets:
Common stock outstanding $80,000
Retained earnings 1,30,000 $2,10,000
Fair value increment:
Land ($1,00,000- $80,000) $20,000
Buildings ($4,00,000-$2,20,000) 1,80,000 2,00,000
Fair value of net assets $4,10,000
Fair value of consideration given 4,70,000
Goodwill $60,000
b. Equity method entries on Road corp.’s books:

Investment in Conger corp. 4,70,000
Cash 4,70,000

Original Book Value 2,10,000 80,000 1,30,000
1/1/X2
Goodwill= 60,000
Identifiable excess= 2,00,000 ($4,70,000 initial investment in Conger corp.)
100% book value= 2,10,000

Common stock 80,000
Investment in Conger corp. 2,10,000

Total = Land + Building + Goodwill
Balances 2,60,000 (20,000) 1,80,000 60,000

Land 20,000
Buildings 1,80,000
Goodwill 60,000
E4-16 Work sheet foe Wholly Owned Subsidiary

a. Equity method entries on Gold Enterprises’ Books:
Investment in Premium Builders 1,67,000
Cash 1,67,000
(Record the initial investment in Premium Builders)

Original Book Value 1,50,000 1,40,000 10,000
1/1/X5
Goodwill= 0
Identifiable excess= 17,000 ($1,67,000 initial investment in Premium Builders.)
100% book value= 1,50,000

Retained Earning 10,000
Investment in Premium Builders.) 1,50,000

Total = Cash & Receivables + Inventory + Buildings & Equipment
Balances 17,000 (2,000) 7,000 12,000

Inventory 7,000
Buildings & Equipment 12,000
Cash and Receivables 2,000
Investment in Premium Builders 17,000
Investment in Premium Builders

Acquisition Price = 1, 67,000 [1, 50,000 basics & 17,000 excess re class]
b.
Balance sheet Gold Premium Elimination Entries Consolidated
Enterprise Builders Dr. Cr.
Cash and Receivables 80,000 30,000 2,000 1,08,000
Inventory 1,50,000 3,50,000 7,000 5,07,000
Building & equip. (net) 4,30,000 80,000 12,000 5,22,000
Investment in Premium 1,67,000 1,50,000 0
Builders 17,000
Total Assets 8,27,000 4,60,000 19,000 1,69,000 11,37,000
Current Liabilities 1,00,000 1,10,000 2,10,000
Long-term debt 4,00,000 2,00,000 6,00,000
Common Stock 2,00,000 1,40,000 1,40,000 2,00,000
Retained earnings 1,27,000 10,000 10,000 1,27,000
Total liabilities & 8,27,000 4,60,000 1,50,000 0 11,37,000
equity
c. Gold Enterprise and Subsidiary

Consolidated Balance sheet
January 1, 20X5
Assets Liabilities and Stock holder’s Equity
Cash and Receivables $1,08,000 Current Liabilities 2,10,000
Inventory 5,07,000 Long-term debt 6,00,000
Building & equipment 5,22,000 Common Stock $2,00,000
(net) Retained earnings 1,27,000 3,27,000
$11,37,000 Total Liabilities $11,37,000
Total assets and Stock
holder’s Equity
E4-20 Basic Consolidation Worksheet

a. Equity method Entries on Blake Cor.’s Books:
Investment in Shaw Corp. 1,50,000
Cash 1,50,000
(Record the initial investment in Shaw Corp.)
Investment in Shaw Corp. 30,000
Income from Shaw Corp. 30,000
(Record Blake Corp.’s 100% share of Shaw Corp.’s
20X3 income.)
Cash 10,000
20X3 dividend.)
+ Net income 30,000 30,000
- Dividend (10,000) (10,000)
Ending book value 1,70,000 1,00,000 70,000
1/1/X3
Goodwill= 0
Identifiable excess= 0 ($1,50,000 initial investment in Shaw Corp.)
100% book value= 1,50,000
12/31/X3
Goodwill= 0
Excess= 0 ($1,70,000 net investment in Shaw Corp.)
100% book value= 1,70,000

Dividends declared 10,000
Investment in Shaw Corp. Income from Shaw Corp.

Acquisition 1,50,000
price
100% net 30,000 30,000 100% net

income income
100%
10,000 Dividends
Ending 1,70,000 30,000 Ending
balance balance
1,70,000 Basic 30,000
0 0
b.
Blake Shaw Elimination Entries Consolidated
Corp. Corp. Dr. Cr.
Income Statement
Sales 2,00,000 1,20,000 3,20,000
Less : Depreciation (25,000) (15,000) (40,000)
Expenses
Less: Other Expenses (1,05,000) (75,000) (1,80,000)
Income from Shaw Corp. 30,000 30,000 0
Net Income 1,00,000 30,000 30,000 1,00,000
Statement of Retained
Earning
Beginning Balance 2,30,000 50,000 50,000 2,30,000
Net Income 1,00,000 30,000 30,000 0 1,00,000
Less: Dividends (40,000) (10,000) 10,000 (40,000)
Declared
Ending Balance 2,90,000 70,000 80,000 10,000 2,90,000
Balance sheet
Current Assets 1,45,000 1,05,000 2,50,000
Depreciable Assets (net) 3,25,000 2,25,000 5,50,000
Investment in Shaw 1,70,000 1,70,000 0
corp.
Total Assets 6,40,00 3,30,000 0 1,70,000 8,00,000
Current liabilities 50,000 40,000 90,000
Long term liabilities 1,00,000 1,20,000 2,20,000
Common stock 2,00,000 1,00,000 1,00,000 2,00,000
Retained earnings 2,90,000 70,000 80,000 10,000 2,90,000
Total Liabilities and 6,40,000 3,30,000 1,80,000 10,000 8,00,000
Equity
E4-21 Basic Consolidation Worksheet for second year
a. Equity method Entries on Blake Cor.’s Books:

20X4 income.)
Cash 15,000
20X4 dividend.)

+ Net income 35,000 35,000
- Dividend (15,000) (15,000)
Ending book value 1,90,000 1,00,000 90,000
1/1/X4
Goodwill= 0
Identifiable excess= 0 ($1,70,000 initial investment in Shaw Corp.)
100% book value= 1,70,000
12/31/X3
Goodwill= 0
Excess= 0 ($1,90,000 net investment in Shaw Corp.)
100% book value= 1,90,000

Dividends declared 15,000
Investment in Shaw Corp. Income from Shaw Corp.

Acquisition 1,70,000
price
100% net 35,000 35,000 100% net

income income
100%
15,000 Dividends
Ending 1,90,000 35,000 Ending
balance balance
1,90,000 Basic 35,000
0 0
b.
Blake Shaw Elimination Entries Consolidated
Corp. Corp. Dr. Cr.
Income Statement
Sales 2,30,000 1,40,000 3,70,000
Less : Depreciation (25,000) (15,000) (40,000)
Expenses
Less: Other Expenses (1,50,000) (90,000) (2,40,000)
Income from Shaw Corp. 35,000 35,000 0
Net Income 90,000 35,000 35,000 90,000
Statement of Retained
Earning
Beginning Balance 2,90,000 70,000 70,000 2,90,000
Net Income 90,000 35,000 35,000 0 90,000
Less: Dividends (50,000) (15,000) 15,000 (50,000)
Declared
Ending Balance 3,30,000 90,000 1,05,000 15,000 3,30,000
Balance sheet
Current Assets 2,10,000 1,50,000 2,50,000
Depreciable Assets (net) 3,00,000 2,10,000 5,50,000
Investment in Shaw 1,90,000 1,90,000 0
corp.
Total Assets 7,00,00 3,60,000 0 1,90,000 8,70,000
Current liabilities 70,000 50,000 1,20,000
Long term liabilities 1,00,000 1,20,000 2,20,000
Common stock 2,00,000 1,00,000 1,00,000 2,00,000
Retained earnings 3,30,000 90,000 1,05,000 15,000 3,30,000
Total Liabilities and 7,00,000 3,60,000 2,05,000 15,000 8,70,000
Equity
P4-25 Assignment of Differential in worksheet
a. Equity method Entries on Teresa Corp.’s Books:

Investment in Sally Enterprise 2,90,000
Cash 2,90,000
(Record the initial investment in Sally Enterprise)

Original Book Value 2,50,000 1,00,000 1,50,000
1/1/X4
Goodwill= 30,000
Identifiable excess= 10,000 ($2,90,000 initial investment in Sally Enterprise)
100% book value= 2,50,000

Investment in Sally Enterprise 2,50,000
Excess value (differential) calculation

Total = Buildings & Equipment + Goodwill
Balances 40,000 10,000 30,000

Building & equipment 10,000
Goodwill 30,000
Investment in Sally Enterprise 40,000
Optional accumulated depreciation elimination entry:

Accumulated depreciation 65,000
Investment in Sally Enterprise

Acquisition Price = 2,90,000 [ 2,50,000 basics & 40,000 excess re class]
Balance sheet Tresa Sally Elimination Entries Consolidated
Corp. Enterprise Dr. Cr.
Cash and Receivables 40,000 20,000 60,000
Inventory 95,000 40,000 1,35,000
Land 80,000 90,000 1,70,000
Building & equipment 4,00,000 2,30,000 10,000 65,000 5,75,000
Less: accumulated dep. (1,75,000) (65,000) 65,000 (1,75,000)
Investment in Sally 2,90,000 2,50,000 0
Enterprise 40,000
Goodwill 30,000 30,000
Total Assets 7,30,000 3,15,000 75,000 3,55,000 7,95,000
Accounts payable 60,000 15,000 75,000

Notes Payable 1,00,000 50,000 1,50,000
Common Stock 3,00,000 1,00,000 1,00,000 3,00,000
Retained earnings 2,70,000 1,50,000 1,50,000 2,70,000
equity
b.
Teresa Corporation and Subsidiary
Consolidated Balance sheet
January 1, 20X4
Particulars $ $
Cash and Receivables 60,000
Inventory 1,35,000
Land 170,000
Building & equipment 5,75,000
Less: accumulated dep. (1,75,000) 4,00,000
Goodwill 30,000
Total assets 7,95,000
Accounts Payable 75,000
Notes payable 1,50,000
Retained earnings 2,70,000 5,70,000
Total liabilities & stockholders’ equity 7,95,000
P4-28 Consolidated Balance sheet
a.
Investment in Lake Corp. 2,20,000

Investment in Lake Corp. 32,000
Optional accumulated depreciation elimination entry:

b.
Balance sheet Lake Elimination Entries Consolidated
Corp. Dr. Cr.
Cash 30,000 20,000 50,000
Account Receivables 1,00,000 40,000 1,40,000
Land 60,000 50,000 1,10,000
Building & equipment 5,00,000 3,50,000 40,000 75,000 8,15,000
Less: accumulated dep. (2,30,000) (75,000) 75,000 8,000 (2,38,000)
Investment in Lake 2,52,000 2,20,000 0
Corporation 32,000
Total Assets 7,12,000 3,85,000 1,15,000 3,03,000 8,77,000
Accounts payable 80,000 10,000 90,000

Taxes Payable 40,000 70,000 1,10,000
Notes Payable 1,00,000 85,000 1,85,000
Common Stock 2,00,000 1,00,000 1,00,000 2,00,000
Retained earnings 2,92,000 1,20,000 1,20,000 2,92,000
equity

Chapter-05 Math Solution

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E4-3 Differential assigned to copyrights.

Journal entries recorded by Best Corporation:

b. Journal entries recorded by Capital Corporation using the cost method

E4-5 Investment Income

E4-6 Determination of Purchase Price

Decrease in account balance during 20X6:

E4-7 Correction Error

Computation of correction of investment account

Computation of correction of retained earnings of Grand Corporation:

E4-8 Differential assigned to Land and Equipment

E4-9 Equity entries with goodwill

E4-13 Balance sheet Consolidation

Book Value Calculations:

Basic Elimination Entry

Excess value (differential) calculation:

Excess value (differential) reclassification entry:

Investment in Throne corp.

b. Equity method entries on Road corp.’s books:

Book Value Calculations:

Basic Elimination Entry

Excess value (differential) calculation:

Excess value (differential) reclassification entry:

E4-16 Work sheet foe Wholly Owned Subsidiary

Book Value Calculations:

Basic Elimination Entry

Excess value (differential) calculation:

Excess value (differential) reclassification entry:

Investment in Premium Builders

c. Gold Enterprise and Subsidiary

E4-20 Basic Consolidation Worksheet

Basic Elimination Entry

Investment in Shaw Corp. Income from Shaw Corp.

100% net 30,000 30,000 100% net

E4-21 Basic Consolidation Worksheet for second year

a. Equity method Entries on Blake Cor.’s Books:

Book Value Calculations:

Basic Elimination Entry

Investment in Shaw Corp. Income from Shaw Corp.

100% net 35,000 35,000 100% net

P4-25 Assignment of Differential in worksheet

a. Equity method Entries on Teresa Corp.’s Books:

Book Value Calculations:

Basic Elimination Entry

Excess value (differential) calculation

Excess value (differential) reclassification entry:

Optional accumulated depreciation elimination entry:

Investment in Sally Enterprise

Accounts payable 60,000 15,000 75,000

Excess value (differential) reclassification entry:

Optional accumulated depreciation elimination entry:

Accounts payable 80,000 10,000 90,000

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