Page 589 - Accounting Principles (A Business Perspective)

14. Stock investments

Investment in Dodd Company 4,519,356
Equipment, net 1,147,500 691,860
Building, net 3,136,500 1,573,200
Land 1,404,000 450,000
Cost of goods sold 8,064,000 2,160,000
Expense (excluding depreciation and taxes) 2,160,000 810,000
Depreciation expense 243,000 128,940
Income tax expense 569,664 123,504
Dividends 477,000 178,200
Total of the accounts with debit balances $25,037,556 $7,992,000
Credit balance accounts
Accounts payable $ 720,000 $ 378,000
Notes payable 270,000 180,000
Common stock - $90 par value 9,540,000 3,564,000
Retained earnings 2,610,000 270,000
Revenue from sales 11,520,000 3,600,000
Income from Dodd Company 377,556
Total of the accounts with credit balances $25,037,556 $7,992,000
There is no intercompany debt at the end of the year.
Prepare a work sheet for consolidated financial statements on 2010 December 31.
Alternate problem G Using the work sheet from the previous problem, prepare the following items:
a. Consolidated income statement for the year ended 2010 December 31.
b. Consolidated statement of retained earnings for the year ended 2010 December 31.
c. Consolidated balance sheet for 2010 December 31.

Beyond the numbers—Critical thinking
Business decision case A You are the CPA engaged to audit the records of Quigley Company. You find that
your client has a portfolio of marketable equity securities that has a total market value of USD 300,000 less than
the total cost of the portfolio. You ask the vice president for finance if the client expects to sell these securities in the
coming year. He answers that he does not know. The securities will be sold if additional cash is needed to finance
operations. When you ask for a cash forecast, you are told that a forecast has been prepared that covers the next

year. It indicates no need to sell the marketable securities.
Write a brief statement in which you explain how you would classify the client's portfolio of marketable
securities in the balance sheet. Does it really make any difference whether the securities are classified as trading
securities or available-for-sale securities? Explain.
Business decision case B On 2010 January 2, Brown Company acquired 60 per cent of the voting common
stock of Cobb Company for USD 720,000 cash. The excess of cost over book value was due to above-average
earnings prospects. Brown has hired you to help it prepare consolidated financial statements and has already

collected the following information for both companies as of 2010 January 2:
Brown Cobb
Company Company
Assets
Cash $ 72,000 $ 54,000
Accounts receivable, net 108,000 126,000
Merchandise inventory 288,000 216,000
Investment in Cobb Company 720,000
Plant and equipment, net 936,000 738,000
Total assets $2,124,000 $1,134,000
Liabilities and stockholders' equity
Accounts payable $ 144,000 $ 54,000
Common stock 1,440,000 720,000
Retained earnings 540,000 360,000
Total liabilities and stockholders' equity $2,124,000 $1,134,000

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