Equity Method –

Year of Acquisition
1. Prep pays $87,000 for 80% interest in Snap

on January 1, when Snap stockholders’ equity

consists of $60,000 capital stock and $30,000

retained earnings.

2. The $15,000 excess of investment cost is

allocated to patents.

Equity Method –
Year of Acquisition

Snap’s net income and dividends are as follows:

2003

Net income $25,000

Dividends $15,000

2004

Net income $30,000

Dividends $15,000

Working Paper Entries

Adjusting and eliminating entries on the working

papers do not affect the general ledger accounts.

a Income from Snap 18,500

Dividends
12,000

Investment in Snap 6,500

 To eliminate income and dividend from Snap

and return the investment account to its

beginning balance

b Minority Interest Expense 5,000

Dividends Snap 3,000

Minority Interest 2,000

To enter minority interest share of subsidiary

income and dividends

c Retained Earnings, Snap 30,000

Capital Stock, Snap 60,000

Patents 15,000

Investment in Snap 87,000

Minority Interest 18,000

To eliminate reciprocal equity and investment

balances, establish beginning minority interest,

and enter unamortized patents

d Expenses 1,500

Patents 1,500

To enter current amortization

Working Papers for

Year of Acquisition