ACT 3910 Lecture Notes - Lecture 3: Accrued Interest, Equity Method, Income Statement
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| Promise Enterprises acquired 80 percent of Brown Corporation’s voting common stock on January 1, 20X3, for $376,000. At that date, the fair value of the noncontrolling interest of Brown Corporation was $94,000. Immediately after Promise acquired its ownership, Brown purchased 70 percent of Tann Company’s stock for $185,500. The fair value of the noncontrolling interest of Tann Company was $79,500 at that date. During 20X3, Promise reported operating income of $270,000 and paid dividends of $90,000. Brown reported operating income of $160,000 and paid dividends of $50,000. Tann reported net income of $60,000 and paid dividends of $10,000. At January 1, 20X3, the stockholders’ equity sections of the balance sheets of the companies were as follows: |
| Promise Enterprises | Brown Corporation | Tann Company | ||||||||||
| Common Stock | $ | 230,000 | $ | 210,000 | $ | 140,000 | ||||||
| Additional Paid-In Capital | 160,000 | 70,000 | 80,000 | |||||||||
| Retained Earnings | 380,000 | 190,000 | 45,000 | |||||||||
| Total Stockholders’ Equity | $ | 770,000 | $ | 470,000 | $ | 265,000 | ||||||
| Required: | |
| a. | Prepare the journal entries recorded by Brown for its investment in Tann during 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
| b. | Prepare the journal entries recorded by Promise for its investment in Brown during 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
| c. | Prepare the consolidation entries related to Brown’s investment in Tann and Promise’s investment in Brown that are needed in preparing consolidated financial statements for Promise and its subsidiaries at December 31, 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
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Lea Company acquired all of Tenzing Corporation's stock on January 1, 20X6 for $150,000 cash. On December 31, 20X8, the trial balances of the two companies were as follows:
| Lea company | Tenzing Corp. | |||
| Debit | Credit | Debit | Credit | |
| Cash | $90,000 | $58,000 | ||
| Accounts Receivable | 97,000 | 55,000 | ||
| Land | 80,000 | 45,000 | ||
| Buildings and Equipment | 300,000 | 200,000 | ||
| Investment in Tenzing Corporation | 180,000 | |||
| Cost of Services Provided | 140,000 | 75,000 | ||
| Depreciation Expense | 30,000 | 20,000 | ||
| Other Expenses | 70,000 | 35,000 | ||
| Dividends Declared | 40,000 | 20,000 | ||
| Accumulated Depreciation | $180,000 | $100,000 | ||
| Accounts Payable | 42,000 | 18,000 | ||
| Taxes Payable | 20,000 | 20,000 | ||
| Notes Payable | 75,000 | 50,000 | ||
| Common Stock | 100,000 | 50,000 | ||
| Retained Earnings | 265,000 | 90,000 | ||
| Service Revenue | 300,000 | 180,000 | ||
| Income from Subsidiary | 45,000 | |||
| $1,027,000 | $1,027,000 | $508,000 | $508,000 | |
Tenzing Corporation reported retained earnings of $75,000 at the date of acquisition. The difference between the acquisition price and underlying book value is assigned to buildings and equipment with a remaining economic life of five years from the date of acquisition. At December 31, 20X8, Tenzing owed Lea $4,000 for services provided.
4. Based on the preceding information, all of the following are consolidating entries required on December 31, 20X8, to prepare consolidated financial statements, except:
| A) | Common Stock | 50,000 | |
| Retained Earnings | 90,000 | ||
| Income from Tenzing Corp. | 50,000 | ||
| Dividends declared | 20,000 | ||
| Investment in Tenzing Corp. | 170,000 | ||
| B) | Accounts Payable | 4,000 | |
| Accounts Receivable | 4,000 | ||
| C) | Depreciation Expense | 5,000 | |
| Income from Tenzing Corp. | 5,000 | ||
| D) | Buildings and Equipment | 20,000 | |
| Accumulated Depreciation | 10,000 | ||
| Investment in Tenzing Corp. | 10,000 |
Option A
Option B
Option C
Option D
5. Based on the preceding information, what amount will be reported as total assets in the consolidated balance sheet for 20X8?
$666,000
$747,000
$651,000
$946,000
6. Based on the preceding information, what amount will be reported for total accounts payable in the consolidated balance sheet for the year 20X8?
$56,000
$46,000
$60,000
$42,000
