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Consolidated Workpaper, Equity Method
(Note that this is the same problem as Problem 4-7, but assuming the use of the partial
equity
method.)
Price Company purchased 90% of the outstanding common stock of Score Company on
January 1, 2006, for $450,000. At that time, Score Company had stockholders equity
consisting of
common stock, $200,000; other contributed capital, $160,000; and retained earnings,
$90,000.
On December 31, 2010, trial balances for Price Company and Score Company were as
follows:
Price Score
Cash $ 109,000 $ 78,000
Accounts Receivable 166,000 94,000
Note Receivable 75,000 0
Inventory 309,000 158,000
Investment in Score Company 633,600 0
Plant and Equipment 940,000 420,000
Land 160,000 70,000
Dividends Declared 70,000 50,000
Cost of Goods Sold 822,000 242,000
Operating Expenses 250,500 124,000
Total Debits $3,535,100 $1,236,000
Accounts Payable $ 132,000 $ 46,000
Notes Payable 300,000 120,000
Common Stock 500,000 200,000
Other Contributed Capital 260,000 160,000
Retained Earnings, 1/1 795,000 210,000
Sales 1,420,000 500,000
Equity in Subsidiary Income 120,600 0
Interest Income 7,500 0
Total Credits $3,535,100 $1,236,000
LO5
Price Companys note receivable is receivable from Score Company. Interest of $7,500
was
paid by Score to Price during 2010. Any difference between book value and the value
implied
by the purchase price relates to goodwill.
Required:
Prepare a consolidated statements workpaper on December 31, 2010

Price Company and Subsidiary

Workpaper - Equity Method

Consolidated Statements Workpaper

For the Year Ended December 31, 2010
Price
Score
Company Company

Income Statement
Sales
Equity in Subsidiary Income
Interest Income
Total Revenue
Cost of Goods Sold
Other Expenses
Total Cost and Expense
Net Income
Noncontrolling Interest
Net Income to Retained Earnings
Retained Earnings Statement
Retained Earnings 1/1
Price Company
Score Company
Net Income from above
Dividends Declared
Price Company
Score Company
Retained Earnings 12/31

1,420,000
120,600
7,500
1,548,100
822,000
250,500
1,072,500
475,600

Eliminating Entries Noncontrolling Consolidated

Interest
Balance
Dr.
Cr.

500,000

1,920,000
(1) 120,600
(3) 7,500

500,000
242,000
124,000
366,000
134,000

475,600 134,000

(3) 7,500

128,100

7,500

13,400 *
13,400

795,000

1,920,000
1,064,000
367,000
1,431,000
489,000
(13,400)
475,600

795,000

210,000 (4) 210,000

475,600 134,000
128,100

7,500

13,400

(70,000)

475,600
(70,000)

(50,000)
1,200,600 294,000

(1) 45,000
338,100
52,500

(5,000)
8,400

1,200,600

* $134,000 .10 = $13,400.

Price
Score
Company Company
Balance Sheet
Cash
Accounts Receivable
Note Receivable
Inventory 12/31
Investment in Score
Difference b/w Implied & Book
Value
Plant and Equipment
Land
Goodwill
Total

109,000
166,000
75,000
309,000
633,600

Eliminating Entries Noncontrolling Consolidated

Interest
Balance
Dr.
Cr.

78,000
94,000

187,000
260,000
(2)

75,000

158,000

467,000
(4) 558,000
(1) 75,600
(4) 50,000 (5) 50,000

940,000
160,000

420,000
70,000

2,392,600

820,000

(5) 50,000

1,360,000
230,000
50,000
2,554,000

Accounts Payable
Notes Payable
Common Stock:
Price Company
Score Company
Other Contributed Capital
Price Company
Score Company
Retained Earnings from above
Noncontrolling Interest 1/1
Noncontrolling Interest 12/31
Total

132,000
300,000

46,000
120,000 (2) 75,000

178,000
345,000

500,000

500,000
200,000 (4) 200,000

260,000
1,200,600
2,392,600

260,000
160,000 (4) 160,000
294,000
338,100
(4)
820,000

873,100

52,500
8,400
62,000** 62,000
70,400
873,100

** $50,000 + [($210,000 $90,000) x .10] = $62,000

(1) To eliminate intercompany income and dividends

(2) To eliminate intercompany receivables and payables
(3) To eliminate intercompany interest expense and income
(4) To eliminate investment in Score company and create noncontrolling interest account
(5) To allocate the difference between implied and book value
Computation and Allocation of Difference between Implied and Book Value Acquired
Parent
Share
Purchase price and implied value
Less: Book value of equity acquired:
Difference between implied and book value
Goodwill
Balance
*$450,000/.90

450,000
405,000
45,000
(45,000)
-0-

NonControlling
Share
50,000
45,000
5,000
(5,000)
-0-

Entire
Value
500,000 *
450,000
50,000
(50,000)
-0-

1,200,600
70,400
2,554,000