Paper Company acquired 100 percent of Scissor Company’s outstanding common stock

Question

Paper Company acquired 100 percent of Scissor Company’s outstanding common stock for $370,000 on January 1, 2008, when the book value of Scissor’s net assets was equal to $370,000 including Accumulated Depreciation of $24,000. Paper uses the equity method to account for investments. During 2008 Scissor Company’s net income was $93,000 and declared dividends of $25,000. Trial balance date for Paper & Scissors as of December 31, 2008, are as follows:

A. Prepare the journal entries on Paper’s Books for the acquisition of Scissor on January 1, 2008

B. Prepare the normal equity method journal entries related to the investment in Scissor Company during 2008.

C. Prepare the eliminating entries needed as of December 31, 2008, to complete a consolidation worksheet.

Trial Balance as of Dece nber31.2008 Scissor Galance Sheet Debit Creft Debit $122,000 $46,0CO Accounts Receivable 140,0C0 190,000 438,0EO 5O,CIO 8J5,00O 5O,CIO 65,0EH 280,CIO 0,CEO C0.CEO 120,0ID Investment in Scissor Co 125,000 5O,CIO 155,00O 12,CCO 50.CEO X5.0EO Buildins&Equipmeit; Cost of Goods Sold Depreciation expense Selling & Admin expense Dividends Declared Accumulated Depreciation Accounts payable Bonds Payable Common Stock Retaïned Eanings Sales Income from Scissor $565,CCO II,CEO 5O,CIO 6X5,0EO 280,CIO LO,CIO 93,0EH $36,0CO 27,0EO 10O,CIO 5O,CIO 120,0ID 310,000 690J0 843,C 843,C

Explanation / Answer

a Date Account title Debit $ Credit $ 01.01.2017 Investment in Scissor Company 3,70,000.00 To Bank 3,70,000.00 (Being business of Scissor company acquired and consideration paid) b 2008 Bank a/c      25,000.00 To Investment in Scissor company a/c      25,000.00 (Being dividend declared & paid are reduced from investment value as it is form of retun on capital) c 31.12.2018 Share Capital 2,50,000.00 Retained earnings 1,20,000.00 To Investment in Scissor company a/c 3,70,000.00 (Being share capital, retained earnings & Investment value are eliminated)

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