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Please read. I asked this question already and the response I received was wrong. Equipment and Goodwill values in question 1 are wrong and the January 1, 2017 retained earnings balances in question 5 were also wrong. I had already gotten everything else done except for question 5. Please help me out. Thank you.
AutoSave ofr cf accounting for_equity investments excel workbook – Read-Only – Excel Mark Comer File Home Insert Page Layout Formulas Data Review View Foxit PDFTell me what you want to do Share ˊ On January 1, 2015, Pueblo Corporation purchased all of Spartan Company’s outstanding stock for $1,200,000 cash. On that date, Spartan’s accounting records showed net assets of $940,000, even though equipment, with a life of 10 years, was undervalued on the books by $180,000. The life of recognized goodwill is considered to be indefinite. Spartan reported $180,000 net income in 2015 and $200,000 in 2016. The subsidiary paid dividends of $40,000 for each year. Financial figures are shown in Table 1 below for the ㄨ ㄚ 2 Exercise 3 Worksheet: Consolidated Balances On January 1, 2015, Pueblo Corporation purchased all of Spartan Company’s outstanding stock for $1,200,000 cash. On that date, Spartan’s accounting records showed net assets of S940,000, even though equipment, with a life of 10 years, was undervalued on the books by $180,000. The life of recognized goodwill is considered to be indefinite. Spartan reported $180,000 net income in 2015 and $200,000 in 2016. The subsidiary paid dividends of $40,000 for each year. Financial figures are shown in Table 1 below for the year ending December 31 2017. Credit balances are indicated in parentheses. 4 Table 1: Financial Figures for Year Ending December 31, 2017 s Account 6 Revenues 7 Cost of goods sold 8 Depreciation expense 9 Investment income 10 Net income 11 Dividends paid 12 Retained earnings, December 31, 2017 13 Current assets 14 Investment in subsidia 15 Equipment (net) 16 Buildings (net) 17 Land Pueblo Spartan (1,200,000) 300,000 700,000 S (1,600,000) $ S 200,000 $ S 600,000 $ (40,000) S S (840,000)$ S 240,000 $ S (2,800,000) S S 600,000 $ S 1,200,000 $ S 1,800,000 $ S 1,600,000 $ S 1,200,000 $ (200,000) 40,000 (800,000) 200,000 1,200,000 800,000 200,000 Exercise 1 | Exercise 2 | Exercise 3 囲 回凹. + 100% o o e-自0@@粗 8:58 AM 9/15/2017 ^回脈 무
Expert Answer
Under Initital Value Method, the amount of investment is recognised at Inital cost or historical cost and the subsequent losses or profits of subsidiary are routed through Income statement without giving its effect to the Cost of Investment. Thus, according to the question given, they adopted inital value method since investment in subsidiary is shown at cost.
Hence, Retained earning of Holding Company Pueblo under Inital Value method will be same as reported in Question i.e., $2,800,000
Partial Equity Method:
Under Partial Equity Method, the cost of investment is adjusted only for accrued income and dividend received.
Thus, amount of accrued income will be added to retained earnings of holding compnay:
Retained earning of Peublo = $ 2,800,000
Add: Income Accured from Spartan (after the acquisition of control) = $ 300,000
{(180,000-40,000)+(200,000-40,000)}
Retained earning under partial equity method = $ 3,100,000
Equity Method:
Under Equity method, Cost of Investment is continually adjusted to reflect the proportionate share of ownership in the assets of subsidiary company.
So, for retained earning, there will be adjustments for all income earned and amortizations etc.
Retained earnings Publeo = $ 2,800,000
Add: Earnings (as above) = $ 300,000
Less: Amortisation of Goodwill = $ 36,000 {(180,000/10)*2}
Retained earning under equity method = $ 3,064,000
