The Paris Company purchased an 80% interest in Seine, Inc. for $600,000 on July
ID: 2519853 • Letter: T
Question
The Paris Company purchased an 80% interest in Seine, Inc. for $600,000 on July 1, 2015, when Seine had the following balance sheet:
Assets
Accounts receivable
$ 50,000
Inventory
120,000
Land
80,000
Building
270,000
Equipment
80,000
Total
$600,000
Liabilities and Equity
Current liabilities
$100,000
Common stock, $5 par
60,000
Paid-in capital in excess of par
140,000
Retained earnings (July 1)
300,000
Total
$600,000
The inventory is understated by $20,000 and is sold in the third quarter of 2015. The building has a fair value of $320,000 and a 10-year remaining life. The equipment has a fair value of $120,000 and a remaining life of 5 years. Any remaining excess is attributed to goodwill.
From July 1 through June 30, 2016, Seine had net income of $100,000 and paid $10,000 in dividends.
Assume that Paris uses the equity method to record its investment in Seine.
Required:
a.
Prepare a determination and distribution of excess schedule as of July 1, 2015.
b.
Prepare the eliminations and adjustments that would be made on the June 30, 2016 consolidated worksheet to eliminate the investment in Seine. Distribute and amortize any excess.
Determination and distribution of excess schedule as of July 1, 2015:
-------Do this in Excel-------
Elimination and Adjusting Entries as of June 30, 2016:
-------Do this in Excel--------
On January 1, 20X1, Prange Company acquired 100% of the common stock of Seaman Company for $600,000. On this date Seaman had total owners' equity of $400,000. Any excess of cost over book value is attributable to a patent, which is to be amortized over 10 years.
During 20X1 and 20X2, Prange has appropriately accounted for its investment in Seaman using the simple equity method.
On January 1, 20X2, Prange held merchandise acquired from Seaman for $30,000. During 20X2, Seaman sold merchandise to Prange for $100,000, of which $20,000 is held by Prange on December 31, 20X2. Seaman's gross profit on all sales is 40%.
On December 31, 20X2, Prange still owes Seaman $20,000 for merchandise acquired in December.
Required:
Complete the worksheet similar to Figure 4-1 (following) for consolidated financial statements for the year ended December 31, 20X2. Prepare your worksheet in Excel. Following is a template in Figure 4-1 that will guide you in setting up your worksheet in Excel.
Assets
Accounts receivable
$ 50,000
Inventory
120,000
Land
80,000
Building
270,000
Equipment
80,000
Total
$600,000
Liabilities and Equity
Current liabilities
$100,000
Common stock, $5 par
60,000
Paid-in capital in excess of par
140,000
Retained earnings (July 1)
300,000
Total
$600,000
Explanation / Answer
q1) a)
b)Eliminating entries:
Q2)PRANGE COMPANY
Eliminations and Adjustments:
(CY) Eliminate the current-year entries made in the investment account and in the subsidiary income account.
(EL) Eliminate the Seaman Company equity balances at the beginning of the year against the investment account.
(D) Distribute the $200,000 excess of cost over book value to patent.
(A) Amortize the patent over 10 years, with $20,000 for 20X1 charged to retained earnings, and $20,000 for 20X2 to operating expenses.
(BI) Eliminate the $12,000 of gross profit in the beginning inventory.
(IS) Eliminate the entire intercompany sales of $100,000.
(EI) Eliminate the $8,000 of gross profit in the ending inventory.
(IA) Eliminate the $20,000 intercompany accounts receivable and payable.
DIF:M OBJ:4-2 MSC: 100%; simple equity
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