S Co Sales P 480000 P 240000 Less Cost of goods sold 204000 138000 Gross profit

S co sales p 480000 p 240000 less cost of goods sold

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P Co. S Co. Sales P 480,000 P 240,000 Less: Cost of goods sold 204,000 138,000 Gross profit P 276,000 P 102,000 Less: Depreciation expense 60,000 24,000 Other expenses 48,000 18,000 P 168,000 P 60,000 Add: Gain on sale of equipment 15,000 31,200 Net income from its own separate operations P 183,000 P 91,200 Add: Investment income 24,810 - Net income P 207,810 P 91,200 20x4: First Year after Acquisition Parent Company Equity Method Entry January 1, 20x4: (1) Investment in S Company……………………………………… 372,000 Cash………………………………………………… ………… 372,000 Acquisition of S Company. January 1, 20x4 – December 31, 20x4: (2) Cash……………………… 28,800 Investment in S Company (P36,000 x 80%) ……………. 28,800 Record dividends from Son Company. December 31, 20x4: (3) Investment in S Company 72,960 Investment income (P91,200 x 80%) 72,960 Record share in net income of subsidiary. December 31, 20x4: (4) Investment income [(P13,200 x 80%) + P3,000, goodwill impairment loss)] 13,560 Investment in S Company 13,560 Record amortization of allocated excess of inventory, equipment, buildings and bonds payable and goodwill impairment loss. December 31, 20x4: (5) Investment income (P15,000 x 100%) 15,000 Investment in S Company 15,000 To adjust investment income for downstream sales - unrealized gain on sale of equipment.. December 31, 20x4: (6) Investment income (P31,200 x 80%) 24,960
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Investment in S Company 24,960 To adjust investment income for upstream sales - unrealized gain on sale of equipment.. December 31, 20x4: (7) Investment in S Company 2,250 Investment income (P2,250 x 100%) 2,250 To adjust investment income for downstream sales - realized gain on sale of equipment.. December 31, 20x4: (8) Investment in S Company 3,120 Investment income (P3,900 x 80%) 3,120 To adjust investment income for upstream sales - realized gain on sale of equipment.. Thus, the investment balance and investment income in the books of P Company is as follows: Consolidation Workpaper – First Year after Acquisition (E1) Common stock S Co………………………………………… 240,000 Retained earnings – S Co…………………………………… 120,000 Investment in S Co…………………………………………… 288,000 Non-controlling interest (P360,000 x 20%) ……………………….. 72,000 To eliminate investment on January 1, 20x4 and equity accounts of subsidiary on date of acquisition; and to establish non- controlling interest (in net assets of subsidiary) on date of acquisition. (E2) Inventory………………………………………………………… ………. 6,000 Accumulated depreciation – equipment……………….. 96,000 Investment in S Cost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%) NI of Son Amortization & (91,200 x 80%) 72,960 13,560 impairment Realized gain downstream sale 2,250 15,000 Unrealized gain downstream sale Realized gain upstream sale 3,120 24,960 Unrealized gain upstream sale Balance, 12/31/x4 368,010 Investment Income Amortization & NI of S impairment 13,560 72,960 (91,200 x 80%) Unrealized gain downstream sale 15,000 2,250 Realized gain downstream sale Unrealized gain upstream sale 24,960 3,120 Realized gain upstream sale 24,810 Balance, 12/31/x4
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Accumulated depreciation – buildings………………….. 192,000 Land………………………………………………………… …………….
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