Reference no: EM131786753

Assignmet

Question 1

Upon formation of Ramp Co. in June 1987, Pond Co. acquired ten percent of the voting common shares at the par value of $10,000. Ramp has not issued any further shares since its inception.

On January 1, 2015, Pond acquired an additional 30% of the outstanding voting common shares of Ramp for $550,000. On that date, Ramp reported assets and liabilities with book values of $2.2 million and $700,000, respectively. A building owned by Ramp had an appraised value of $300,000, although it had a book value of only $120,000. This building had a 12-year remaining life and no salvage value. It was being depreciated on the straight-line basis.

Ramp generated net income of $300,000 in 2015 and a loss of $120,000 in 2016. In each of these two years, Ramp paid a cash dividend of $70,000 to its stockholders.During 2015, Ramp sold inventory to Pond that had an original cost of $60,000. The merchandise was sold to Pond for $96,000. Of this balance, $72,000 was resold to outsiders during 2015 and the remainder was sold during 2016. In 2016, Ramp sold inventory to Pond for $180,000. This inventory had cost only $108,000. Pond resold $120,000 of the inventory during 2016 and the rest during 2017.

Required:

For 2015 and then for 2016, prepare the journal entries in Pond's books in respect of its investment in Ramp given that this investment is correctly classified as an equity investment.

Question 2

Matthews Co. obtained ninety percent of the common stock of Jackson Co. on January 1, 2016. As of that date, Jackson had the following balances, and fair values, on some of its accounts:

                                                                     Cost               Fair value
Additional paid-in capital                                   60,000
Buildings - net (10year remaining useful life)       140,000         188,000
Common stock                                                300,000
Equipment - net (8 year remaining useful life)     240,000         216,000
Inventory                                                       110,000         130,000
Land                                                              90,000           120,000
Long-term liabilities (mature 12/31/2018)          180,000         160,000
Patent (10 year remaining useful life )                0                   72,000

During 2017 (2016), Jackson reported net income of $132,000 ($96,000) while paying dividends of $36,000 ($12,000). The retained earnings were $300,000 at the end of 2017.

Matthews Co. acquired the common stock of Jackson Co. for $585,000 in cashand incurred legal and accounting fees of $40,000 in respect of the merger. Matthews uses the equity methodto account for this investment.

Required:

Prepare the consolidation journal entries for December 31, 2017.

Show all steps 1, 2, 3(a), 3(b)