Pistol Corporation purchased 100 percent ownership of Scope Products on January

Question

Pistol Corporation purchased 100 percent ownership of Scope Products on January 1, 20X6, for $65,000, at which time Scope Products reported retained earnings of $13,000 and capital stock outstanding of $27,000. The differential was attributable to patents with a life of eight years. Income and dividends of Scope Products were Year Net Income Dividends 20x6 $24,000 20X7 32,000 20x8 40,000 $ 9,000 11,000 11,000 Required: 1. Prepare the equity method entries that Pistol should record to account for this investment in 20X6, 20X7, and 20X8. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet 123 4 5 6 7 8 9 10 > Record the purchase of Scope Company.

Explanation / Answer

Question 1

Equity Method of Accounting is only applicable in case of associates. Since Scope is a wholly owned subsidiary the entire net profits of the Scope is to be consolidated to the financial statements of Pisto; As such no entry is recquired.

Question 2

Investment in Scope is set-off against the equity in the books of scope. Hence it does not appear in the consolidated financial statements. However, the investment in the standalone financial statement remains the same - at cost.

Hence Balance of investment account = $65,000

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---