Page 586 - Accounting Principles (A Business Perspective)

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Net incomeDividends
(loss) Paid
2010 $357,840 $290,640
2011 (45,360) -0-
2012 108,360 72,240
a. Prepare general journal entries to record the investment and the effect of the subsidiary's income, losses, and
dividends on Pearson Company's accounts.
b. Compute the balance in the investment account on 2012 December 31.
Problem E Cord Company acquired 100 per cent of the outstanding voting common stock of Thorpe Company

on 2010 January 2, for USD 2,700,000. At the end of business on the date of acquisition, the balance sheets for the
two companies were as follows:
Cord Thorpe
Company Company
Assets
Cash $ 315,000 $ 180,000
Accounts receivable, net 234,000 144,000
Notes receivable 360,000 90,000
Merchandise inventory 495,000 234,000
Investment in Thorpe Company 2,700,000
Equipment, net 648,000 450,000
Building, net 1,890,000 990,000
Land 765,000 405,000
Total assets $7,407,000 $2,493,000
Liabilities and stockholders' equity
Accounts payable $ 117,000 $ 135,000
Notes payable 90,000 108,000
Common stock - $45 par value 5,400,000 1,800,000
Retained earnings 1,800,000 450,000
Total liabilities and stockholders' equity $7,407,000 $2,493,000
The excess of cost over book value is attributable to the above-average earnings prospects of Thorpe Company.
On the date of acquisition, Thorpe Company borrowed USD 72,000 from Cord Company by giving a note.
a. Prepare a work sheet for a consolidated balance sheet as of the date of acquisition.
b. Prepare a consolidated balance sheet for 2010 January 2.

Problem F Refer to the previous problem, Cord Company uses the equity method. Assume the following are
from the adjusted trial balances of Cord Company and Thorpe Company on 2010 December 31:
Cord Thorpe
Company Company
Debit balance accounts
Cash $ 351,000 $ 315,000
Accounts receivable, net 378,000 180,000
Notes receivable 315,000 45,000
Merchandise inventory, December 31 495,000 287,100
Investment in Thorpe Company 2,790,000
Equipment, net 615,000 427,500
Building, net 1,814,400 950,400
Land 765,000 405,000
Cost of goods sold 1,800,000 630,000
Expense (excluding depreciation and taxes) 720,000 270,900
Depreciation expense 108,000 62,100
Income tax expense 585,000 189,000
Dividends 540,000 108,000
Total of the accounts with debit balances $11,277,000 $3,870,000
Credit balance accounts
Accounts payable $ 135,000 $ 180,000
Notes payable 144,000 90,000
Common stock - $45 par value 5,400,000 1,800,000
Retained earnings – January 1 1,800,000 450,000
Revenue from sales 3,600,000 1,350,000
Income from Thorpe Company 198,000

Accounting Principles: A Business Perspective 587 A Global Text