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Jones Company acquired an 80% interest in Smith Company at the beginning of Year 1 for $161,000. The book value of the stock purchased was $140,000....

Jones Company acquired an 80% interest in Smith Company at the beginning of Year 1 for $161,000. The book value of the stock purchased was $140,000. In negotiating the purchase price, it was agreed that the market value was justified in exceeding the book value because of the strong foothold in the market established by a newly launched product, Instant Coffee. Competitive brands are now coming on the market, however, and management

believes that the initial advantage gained by Smith's new product will be dissipated in the next five years. Any goodwill should be amortized over this period. During Year 1, Jones sold to Smith merchandise for $85,000 that cost $10,000, and 20% of these goods are still in Smith's ending inventory. Jones uses the cost method to account for its investment in Smith. Minority interest will reflect the legal method.

Required:

a. Complete the accompanying work sheet, supplying

notes to explain the entries.

b. Prepare a statement of consolidated net income showing

minority interest.

Jones Company acquired an 80% interest in Smith Company at the beginning of Year 1 for $161,000. The book value of the stock purchased was $140,000. In negotiating the purchase price, it was agreed that the market value was justified in exceeding the book value because of the strong foothold in the market established by a newly launched product, Instant Coffee. Competitive brands are now coming on the market, however, and management believes that the initial advantage gained by Smith's new product will be dissipated in the next five years. Any goodwill should be amortized over this period. During Year 1, Jones sold to Smith merchandise for $85,000 that cost $10,000, and 20% of these goods are still in Smith's ending inventory. Jones uses the cost method to account for its investment in Smith. Minority interest will reflect the legal method. Required: a. Complete the accompanying work sheet, supplying notes to explain the entries. b. Prepare a statement of consolidated net income showing minority interest. JONES COMPANY Consolidating Work Sheet Year 1 End Account Title Jones Smith Eliminating Entries Consolidated Company Company Debit Credit Trail balance Inventory 100,000 $ 50,000 Investment in Smith Company 161,000 Dividend Receivable From Smith Company 2,400 Other Assets 242,600 150,000 Cost of Goods Sold 313,400 121,600 Operating Expenses 135,200 30,200 Income Taxes 18,400 7,200 Dividends Paid- Jones Company 15,000 Dividends Paid- Smith Company 6,000 Liabilities 96,500 41,000 Dividends Payable 7,500 3,000 Sales (495,200) (181,000) Dividend Income (4,800) Capital Stock- Jones Company (300,000) Capital Stock- Smith Company (100,000) Retained Earnings- Jones Company (84,000) Retained Earnings- Smith Company {40,000} Total 0 0
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Explain a) the nature of minority interest and b) its proper presentation on a consolidated balance sheet.
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2009-03-29_042445_consolidated_BS_Jones_and_smith.xls

No adjustme
Eliminatin
g Entries
Account Title
Inventory
Invetment in Smith Co.
Dividends receivable from Smith
Other Assets
Cost of goods sold
Operating expenses
Income Taxes
Dividends paid -...

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