Reference no: EM131827578
Question 1 - Workpaper Eliminating Entries, Losses by Subsidiary
Poco Company purchased 85% of the outstanding common stock of Serena Company on December 31, 2009, for $310,000 cash. On that date, Serena Company's stockholders' equity consisted of the following:
Common stock $240,000
Other contributed capital 55,000
Retained earnings 50,000
$345,000
During 2012, Serena Company distributed a dividend in the amount of $12,000 and at year-end reported a net loss of $10,000. During the time that Poco Company has held its investment in Serena Company, Serena Company's retained earnings balance has decreased $29,500 to a net balance of $20,500 after closing on December 31, 2012. Serena Company did not declare or distribute any dividends in 2010 or 2011. The difference between book value and the value implied by the purchase price relates to goodwill.
Required:
A. Assume that Poco Company uses the equity method. Prepare in general journal form the entries needed in the preparation of a consolidated statements workpaper on December 31, 2012. Explain why the partial and complete equity methods would result in the same entries in this instance.
B. Assume that Poco Company uses the cost method. Prepare in general journal form the entries needed in the preparation of a consolidated statements workpaper on December 31, 2012.
Question 2 - Interim Purchase, Partial-Year Reporting Alternative, Equity Method
On October 1, 2010, Para Company purchased 90% of the outstanding common stock of Star Company for $210,000. Additional data concerning Star Company for 2010 follows:
Common stock $70,000
Other contributed capital 30,000
Retained earnings, 1/1 70,000
Net income 60,000
Dividends declared and paid (12/15) 10,000
Any difference between book value and the value implied by the purchase price relates to goodwill. Para Company uses the partial equity method to record its investment in Star Company.
Required:
A. Prepare on Para Company's books journal entries to record the investment-related activities for 2010.
B. Prepare workpaper eliminating entries for a workpaper on December 31, 2010. Star Company's net income is earned evenly throughout the year. (Use alternative two-the partial year reporting alternative.)
C. Repeat part B, but use the full-year reporting alternative.
Question 3 - Workpaper Entries and Gain on Sale of Land
Padilla Company purchased 80% of the common stock of Sanoma Company in the open market on January 1, 2010, paying $31,000 more than the book value of the interest acquired. The difference between book value and the value implied by the purchase price is attributable to land.
Required:
A. What workpaper entry is required each year until the land is disposed of?
B. Assume that the land is sold on 1/1/13 and that Sanoma Company recognizes a $50,000 gain on its books. What amount of gain will be reflected in consolidated income on the 2013 consolidated income statement?
C. In all years subsequent to the disposal of the land, what workpaper entry will be necessary? Show entry for all three methods (cost, partial equity, and complete equity).