Description
P5-39 Comprehensive Problem: Majority-Owned Subsidiary
Master Corporation acquired 80 percent ownership of Stanley Wood Products Company on January 1, 20X1, for $160,000. On that date, the fair value of the noncontrolling interest was $40,000, and Stanley reported retained earnings of $50,000 and had $100,000 of common stock outstanding. Master has used the equity method in accounting for its investment in Stanley. 250,000 18,000$1,052,400 Trial balance data for the two companies on December 31, 20X5, are as follows:
Master Corporation | Stanley Wood Products Company | |||||
Debit | Credit | Debit | Credit | |||
Cash & Receivables | $81,000 | 65,000 | ||||
Inventory | $260,000 | 90,000 | ||||
Land | $80,000 | 80,000 | ||||
Building & Equipment | $500,000 | 150,000 | ||||
Inventments in stanley Wood Products stock | $188,000 | |||||
COGS | $120,000 | 50,000 | ||||
Depreciation Expense | $25,000 | 15,000 | ||||
Inventory losses | $15,000 | 5,000 | ||||
Dividends Declared | $30,000 | 10,000 | ||||
Accumulated Depreciation | $205,000 | 105,000 | ||||
Accounts Payable | $60,000 | 20,000 | ||||
Notes Payable | $200,000 | 50,000 | ||||
Common Stock | $300,000 | 100,000 | ||||
Retained Earnings | $314,000 | 90,000 | ||||
Sales | $200,000 | 100,000 | ||||
Income from Subsidairy | $20,000 | |||||
$1,299,000 | 1,299,000 | 465,000 | 465,000 |
Additional information:
1.On the date of combination, the fair value of Stanley’s depreciable assets was 50,000 more than book value. The accumulated depreciation on those assets were 10,000 on the acquisition date. The differential assigned to depreciable assets should be written off over the following 10-year period.
2.There was 10,000 of incorporate receivables and payables at the end of 20X5
Required:
A.Give all journal entries that Master recorded during 20X5 related to its investments in Stanley.
B.Give all consolidation entries needed to prepare consolidated statements for 20X5
C.Prepare a three-part worksheet as of December 31, 20X5
Explanation & Answer
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Running Head: MAJORITY OWNED SUBSIDIARY
1
Comprehensive Problem: Majority-Owned Subsidiary
Instructor name
Student name
Date
MAJORITY OWNED SUBSIDIARY
2
A. Give all journal entries that Master recorded during 20X5 related to its investments in
Stanley.
Sr. No.
1
Particulars
Debit
Cash
Credit
8,000
Investment in Stanley company
2
8,000
Investment in Stanley company
24,000
Income from Stanley company
3
24,000
Income from Stanley company
4,000
Investment in Stanley company
4,000
(1) $10,000 x .80 = $8,000
(2) $30,000 x .80 = $24,000
(3) ($50,000 / 10,000yrs) x .80 = $4,000
B. Give all consolidation entries needed to prepare consolidated statements for 20X5
Comm...