We now examine consolidations in years after the acquisition has taken place. Continuing with the same example from above, assume that P acquires 100% of the stock of S for $1,000,000 cash on 1/1/21. S’s accounts at the acquisition date are as follows: Book Value Fair Value Difference Current assets $350,000 $350,000 -0- Land 300,000 400,000 100,000 Buildings (10-year life) 500,000 650,000 150,000 Equipment (5-year life) 200,000 150,000 (50,000) Liabilities (650,000) (650,000) -0- Net assets $700,000 $900,000 $ 200,000 Common stock 100,000 Additional PIC 200,000 Retained earnings 400,000 S earns income of $80,000 during 2021 and pays a cash dividend of $30,000. In addition, S earns income of $100,000, $120,000, and $125,000 and pays dividends of $30,000, $35,000, and $40,000 in 2022, 2023, and 2024, respectively. We want to prepare consolidated financial statements as of 12/31/24. a. Assume P uses the equity method to account for S. What is the balance in the investment account as of 12/31/23? As of 12/31/24? A) How much equity in investee income do they recognize during 2024? B) How much excess depreciation has been recognized on the building and equipment prior to 2024 C )Consolidating entries (equity method, 2024):
We now examine consolidations in years after the acquisition has taken place. Continuing with the same example from above, assume that P acquires 100% of the stock of S for $1,000,000 cash on 1/1/21. S’s accounts at the acquisition date are as follows:
Book Value Fair Value Difference
Current assets $350,000 $350,000 -0-
Land 300,000 400,000 100,000
Buildings (10-year life) 500,000 650,000 150,000
Equipment (5-year life) 200,000 150,000 (50,000)
Liabilities (650,000) (650,000) -0-
Net assets $700,000 $900,000 $ 200,000
Common stock 100,000
Additional PIC 200,000
Retained earnings 400,000
S earns income of $80,000 during 2021 and pays a cash dividend of $30,000. In addition, S earns income of $100,000, $120,000, and $125,000 and pays dividends of $30,000, $35,000, and $40,000 in 2022, 2023, and 2024, respectively. We want to prepare consolidated financial statements as of 12/31/24.
a. Assume P uses the equity method to account for S. What is the balance in the investment account as of 12/31/23? As of 12/31/24?
A) How much equity in investee income do they recognize during 2024?
B) How much excess depreciation has been recognized on the building and equipment prior to 2024
C )Consolidating entries (equity method, 2024):
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