Advance Financial Accounting 1

Week 3
The Consolidation of Less-than-Wholly-Owned Subsidiaries with No Differential
Teaching Assistant Team

Problem I: Consolidated Worksheet and Balance Sheet on The Acquisition Date (Equity
Method)

Jajang Company acquired 90 percent of Myeon Company’s outstanding common stock for
$270.000 on January 1, 2X20, when the book value of Myeon’s net assets was equal to
$300.000. Jajang uses equity method to account for investments. The following is the trial
balance data for Jajang and Myeon as of January 1, 2X20:

Accounts Jajang Company Myeon Company

  Debit ($) Credit ($) Debit ($) Credit ($)
ASSETS 
Cash 55,000   20,000  
Accounts Receivable 50,000   30,000  
Inventory 100,000   60,000  
Investment in Myeon Company 270,000      
Land 225,000   100,000  
Building & Equipment 700,000   200,000  
Accumulated Depreciation (400,000)   (10,000)  
TOTAL ASSETS 1,000,000   400,000  

LIABILITIES AND STOCKHOLDERS' EQUITY   

Accounts Payable   75,000   25,000
Bonds Payable   200,000   75,000
Common Stock   500,000   200,000
Retained Earnings   225,000   100,000
TOTAL LIABILITIES AND
  1,000,000   400,000
STOCKHOLDERS' EQUITY

Required:
a. Prepare the journal entry on Jajang’s books for the acquisition on Myeon on January
1, 2X20
b. Prepare a consolidation worksheet on the acquisition date, January 1, 2X20, in good
form.

PROBLEM 2: Consolidated Worksheet at End of the First Year of Ownership (Equity

Method)

Jajang Company acquired 90 percent of Myeon Company’s outstanding common stock for
$270.000 on January 1, 2X20, when the book value of Myeon’s net assets was equal to
$300.000. Jajang uses equity method to account for investments. The following is the trial
balance data for Jajang and Myeon as of December 31, 2X20:
 Jajang Company Myeon Company
Accounts
Debit ($) Credit ($) Debit ($) Credit ($)
Cash    
158,000 80,000
Accounts Receivable    
165,000 65,000
Inventory    
200,000 75,000
Investment in Myeon Company    
319,500 -
Land    
200,000 100,000
Building & Equipment    
700,000 200,000
COGS    
200,000 125,000
Depreciation Expense    
50,000 10,000
S&A Expenses    
225,000 40,000
Dividends Declared    
100,000 20,000
Accumulated Depreciation   450,000   20,000
Accounts Payable   75,000   60,000
Bonds Payable   200,000   85,000
Common Stock   500,000   200,000
Retained Earnings   225,000   100,000
Sales   800,000   250,000
Income from Myeon   67,500   -
Total 2,317,500 2,317,500 715,000 715,000

Required:
a. Prepare any equity method entry(ies) related to the investment in Myeon Company
during 2X20
b. Prepare a consolidation worksheet for 2X20 in good form.

PROBLEM 3: Consolidated Worksheet at End of the Second Year of Ownership

(Equity Method)

Jajang Company acquired 90 percent of Myeon Company’s outstanding common stock for
$270.000 on January 1, 2X20, when the book value of Myeon’s net assets was equal to
$300.000. Problem 2 summarizes the first year of Jajang’s ownership of Myeon. Jajang uses
the equity method to account for investments. The following is the trial balance data for
Jajang and Myeon as of December 31, 2X21:
 Jajang Company Myeon Company
Accounts
Debit ($) Credit ($) Debit ($) Credit ($)
Cash 255,000   75,000  
Accounts Receivable 190,000   80,000  
Inventory 180,000   100,000  
Investment in Myeon
364,500   0  
Company
Land 200,000   100,000  
 
Building & Equipment 700,000    
200.000
COGS 270,000   150,000  
Depreciation Expense 50,000   10,000  
S&A Expenses 230,000   60,000  
Dividends Declared 225,000   30,000  
Accumulated Depreciation   500,000   30,000
Accounts Payable   75,000   35,000
Bonds Payable   150,000   85,000
Common Stock   500,000   200,000
Retained Earnings   517,500   155,000
Sales   850,000   300,000
Income from Myeon   72,000    
Total 2,664,500 2,664,500 805,000 805,000

Required:
a. Prepare any equity method entry(ies) related to the investment in Myeon Company
during 2X21
b. Prepare a consolidation worksheet for 2X21 in good form.