A requiress 100% of B on 1/1/2009. B will be operated as a separate subsidiary.

Question

A requiress 100% of B on 1/1/2009. B will be operated as a separate subsidiary. A will use the equity method to account for its investment in B. In 2013, A has net income of 400,000 and pays dividends of 100,000. B has net income of 200,000 and pays dividends of 75,000. At acquisition date, A has a building with a BV of 3,000,000 and fv of 4,000,000. At that date, B has a buidling with a bv of 800,000 and fv of 900,000. Both building have a useful life of 5 years. (straight line method) At 12/31/2013, A has BV building of 5000,000. B has BV building of 2000,000.

a. prepare consolidation worksheet D to reflect necesssary adjustment for divident

b. how much are consolidated dividends of 2013

c. prepare worksheet entry A at 12/31/2013 (no goodwill)

d.how much is consolidated building at 12/31/2013.

Explanation / Answer

Solution.

a. prepare consolidation worksheet D to reflect necesssary adjustment for divident

A has net income of 400,000 and pays dividends of 100,000.

B has net income of 200,000 and pays dividends of 75,000.

100,000 dividend on 400,000 Profit (25%)

Total ibncome of A = 400,000 + 75,000 = 475,000

So dividend   = 475,000 x 25% =118,750

b. how much are consolidated dividends of 2013.

consolidated dividends of 2013 = $118,750

Because dividend issued by B is like income of A and It's include in A income statement.

d.how much is consolidated building at 12/31/2013.

At acquisition date A has a building = 3,000,000

At acquisition date B has a buidling = 800,000

Useful life of 5 years

Straight line method

From 1/1/2009 to 12/31/2013 total 5 years completed. so end of 12/31/2013 value of Building is Zero.

Now,

At 12/31/2013,

A has BV building of 5000,000.

B has BV building of 2000,000.

So this is the consolidated building at 12/31/2013.$ 70,00,000.

Total value of building at 12/31/2013 is

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