On January 1, 20X7, Jones Company acquired 90 percent of the outstanding common
ID: 2448621 • Letter: O
Question
On January 1, 20X7, Jones Company acquired 90 percent of the outstanding common stock of Smith Corporation for $1,242,000. On that date, the fair value of noncontrolling interest was equal to $138,000. The entire differential was related to land held by Smith. At the date of acquisition, Smith had common stock outstanding of $520,000, additional paid-in capital of $200,000, and retained earnings of $540,000. During 20X7, Smith sold inventory to Jones for $440,000. The inventory originally cost Smith $360,000. By year-end, 30 percent was still in Jones' ending inventory. During 20X8, the remaining inventory was resold to an unrelated customer. Both Jones and Smith use perpetual inventory systems.
Income and dividend information for both Jones and Smith for 20X7 and 20X8 are as follows:
Jones Company
Income 20x7=860000 20x8=910000
Dividends 20x7=160000 20x8=200000
Smith corp.
Income 20x7=360000 20x8=420000
dividends 20x7=200000 20x8=200000
me Jones uses the equity method to account for its investment in Smith.
Required:
Present the worksheet elimination entries necessary to prepare consolidated financial statements for 20X7.
.Present the worksheet elimination entries necessary to prepare consolidated financial statements for 20X8
Compute consolidated net income and the allocation of income to the controlling and non-controlling interests.
Explanation / Answer
1) Worksheet Elimination Entries
Date Particulars JF Debit Credit
dd/ mm / 2007 Common Stock A/c Dr $520,000
dd/ mm / 2007 Additional paid in capital Dr $200,000
dd/ mm / 2007 Retained earnings A/c Dr $540,000.
dd/ mm / 2007 Pre acquistion Earning A/c Dr $18,000
To Investment in Smith A/c $1,242,000
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dd/ mm / 2007 Investment Income A/c Dr $360000
Investment Income In Smith A/c $360000
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dd/ mm / 2008 Investment Income In Smith Dr A/c $420,000
Investment Income A/c $420,000
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dd/ mm / 2008 Cash A/c Dr $200,000
Investment Income In Smith A/c $200,000
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Compute consolidated net income and the allocation of income 2008
Income =$ 910,000( Jones)
Income= $420,000(Smith)
Dividneds =200,000(Smith)
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Total =$1,530,000
Less:
Dividends =$200,000 (Jones)
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Total =$1,330,000
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