Question

1. On January 1, 20X3, Pope Company acquired 100% of the commonstock of Siegel Company for $300,000. On this date Siegel had totalowners’ equity of $250,000. Any excess of cost over book value isattributable to goodwill. Pope accounts for its investment inSiegel using the simple equity method.

On July 1, 20X3, Siegel Company sold to outside investors$300,000 par value of 10-year, 10% bonds. The price received wasequal to par. The bonds pay interest semi-annually on July 1 andJanuary 1.

During early 20X4, market interest rates on bonds similar tothose issued by Siegel decreased to 8%. As a result, the marketvalue of the bonds increased. On July 1, 20X4, Pope purchased$150,000 par value of Siegel’s bonds, paying $163,000. Pope stillholds the bonds on December 31, 20X4 and has amortized the premium,using the straight-line method.

Required:

Complete the Figure 5-1 worksheet for consolidated financialstatements for the year ended December 31, 20X4. Round allcomputations to the nearest dollar.

Figure 5-1

 

Trial Balance

Eliminations and

 

Pope

Siegel

Adjustments

Account Titles

Company

Company

Debit

Credit

Interest Receivable

7,500

 

 

 

 

 

Other Current Assets

157,212

371,000

 

 

 

 

Investment in Sub. Company

410,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Sub. Bonds

162,278

 

 

 

 

 

 

 

 

 

 

 

 

Land

50,000

30,000

 

 

 

 

Buildings and Equipment

350,000

380,000

 

 

 

 

Rent Receivable

(100,000)

(50,000)

 

 

 

 

Goodwill

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Payable

 

(15,000)

 

 

 

 

Other Current Liabilities

(120,000)

(56,000)

 

 

 

 

Bonds Payable, 10%

 

(300,000)

 

 

 

 

 

 

 

 

 

 

 

Other Long-Term Liabilities

(200,000)

 

 

 

 

 

Common Stock ? P Co.

(200,000)

 

 

 

 

 

Other Paid-in Capital ? P Co.

(100,000)

 

 

 

 

 

Retained Earnings ? P Co.

(280,212)

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock ? S Co.

 

(50,000)

 

 

 

 

Other Paid-in Capital ? S Co.

 

(70,000)

 

 

 

 

Retained Earnings ? S Co.

 

(180,000)

 

 

 

 

 

 

 

 

 

 

 

Net Sales

(500,000)

(400,000)

 

 

 

 

Cost of Goods Sold

300,000

240,000

 

 

 

 

Operating Expenses

100,000

50,000

 

 

 

 

Interest Expense

 

30,000

 

 

 

 

Interest Income

(6,778)

 

 

 

 

 

Subsidiary Income

(80,000)

 

 

 

 

 

Dividends Declared ? P Co.

50,000

 

 

 

 

 

Dividends Declared ? S Co.

 

20,000

 

 

 

 

Loss on Retirement of Bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Net Income

 

 

 

 

 

 

     To NCI

 

 

 

 

 

 

     To Controlling Interest

 

 

 

 

 

 

Total NCI

 

 

 

 

 

 

Ret. Earn. Contr. Int. 31

 

 

 

 

 

 

 

0

0

 

 

 

 

(continued)

             

 

 

Consol.

 

Control.

Consol.

 

Income

 

Retained

Balance

Account Titles

Statement

NCI

Earnings

Sheet

Interest Receivable

 

 

 

 

Other Current Assets

 

 

 

 

Investment in Sub. Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Sub. Bonds

 

 

 

 

 

 

 

 

 

Land

 

 

 

 

Buildings and Equipment

 

 

 

 

Rent Receivable

 

 

 

 

Goodwill

 

 

 

 

 

 

 

 

 

Interest Payable

 

 

 

 

Other Current Liabilities

 

 

 

 

Bonds Payable, 10%

 

 

 

 

 

 

 

 

 

Other Long-Term Liabilities

 

 

 

 

Common Stock ? P Co.

 

 

 

 

Other Paid-in Capital ? P Co.

 

 

 

 

Retained Earnings ? P Co.

 

 

 

 

 

 

 

 

 

Common Stock ? S Co.

 

 

 

 

Other Paid-in Capital ? S Co.

 

 

 

 

Retained Earnings ? S Co.

 

 

 

 

 

 

 

 

 

Net Sales

 

 

 

 

Cost of Goods Sold

 

 

 

 

Operating Expenses

 

 

 

 

Interest Expense

 

 

 

 

Interest Income

 

 

 

 

Subsidiary Income

 

 

 

 

Dividends Declared ? P Co.

 

 

 

 

Dividends Declared ? S Co.

 

 

 

 

Loss on Retirement of Bonds

 

 

 

 

 

 

 

 

 

Consolidated Net Income

 

 

 

 

     To NCI

 

 

 

 

     To Controlling Interest

 

 

 

 

Total NCI

 

 

 

 

Ret. Earn. Contr. Int. 31

 

 

 

 

 

 

 

 

 

(CY) Eliminate the current-year entries made in the investmentaccount and in the

OBJ:  5-2               

MSC: straight-line amortization; consolidation in year bonds arepurchased

 



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