On January 1, 20X9, Zigma Company acquired 100 percent of Standard Company\'s co
ID: 2571302 • Letter: O
Question
On January 1, 20X9, Zigma Company acquired 100 percent of Standard Company's common shares at underlying book value. Zigma uses the equity method in accounting for its ownership of Standard. On December 31, 20X9, the trial balances of the two companies are as follows:
Required
a. Prepare the journal entries on Zigma’s books for the acquisition of Standard on January 1, 20X9 as well as any normal equity-method entry(ies) related to the investment in Standard Company during 20X9.
b. Prepare the consolidation entries needed as of December 31, 20X9, to complete a consolidation worksheet.
c. Prepare a consolidation worksheet as of December 31, 20X9.
Thank you so much in advance; it is much appreciated :)
Zigma Company Standard Company Item Debit Credit Debit Credit Current Assets 238,000 95,000 Depreciable Assets 300,000 170,000 Investment in Standard Company 100,000 Other Expenses 90,000 70,000 Depreciation Expense 30,000 17,000 Dividends Declared 32,000 10,000 Accumulated Depreciation 120,000 85,000 Current Liabilities 50,000 30,000 Long-Term Debt 120,000 50,000 Common Stock 100,000 50,000 Retained Earnings 175,000 35,000 Sales 200,000 112,000 Income from Standard Company 25,000 790,000 790,000 362,000 362,000Explanation / Answer
a. Acquisition entry in the books of Zigma's for the year of 2009
Current assets A/c Dr. $95000
Depreciable Assets Dr. $85000
To Current Liabilities A/c $30000
To Long term debt A/c $50000
To Standard company A/c $100000
(being standard company on book value basis)
2. Standard company A/c Dr. $100000
To Cash/bank A/c $100000
(being amt purchase consideration is paid to standard company)
b. Calculation of profit of zigma company Standard company
Sales $200000 $112000
Less: Exp. $90000 $70000
Less: Dep. $30000 $17000
Less: Dividend paid $32000 $10000
Add: Dividend Received $10000
Net income $58000 $15000
Journal entry in the books of Zigma
Cash/bank A/c Dr. $10000
To dividend income A/c $10000
(being Dividend received)
consolidated profit and loss of Zigma company
Retained earning opening $175000
Add: profit during the year $58000
Add: profit share from Standard $15000
Total Retained earning $248000
c. Consolidated Balance sheet of Zigma's
For the year of 2009
Shareholder fund $ $
Equity $100000
Retained earning ($175000+25000+48000) $248000 $348000
Long term debt (120000+50000) $170000
Current Liabilities $80000
Total (A) $598000
Fixed Assets (180000+85000) $265000
Investment in Standard company $100000
Current Assets (238000+95000-100000) $233000
Total (B) $598000