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On January 1, 2017, P purchased 80% of the common stock of S for $80,000. S had common stock of $80,000 and retained earnings of $12,000 at that time. On December 31, 2021, the trial balances of the two companies were: S Cash 13,000 14,000 Accounts receivable 37,000 36,000 Investment in S Company 80,000 0 Plant and equipment 60,000 45,000 Land 18,000 12,000 Dividends declared 10,000 12,000 Inventory, 12/31 59,600 15,000 Cost of Sales and Expenses 50,000 30,000 Total debits 314,600 164,000 Liabilities 10,000 6,000 Common stock 120,000 80,000 Retained earnings 55,000 30,000 Sales 120,000 48,000 Dividend income 9,600 0 Total credits 314,600 164,000 Any difference between book value and the value implied by the purchase price relates to Land. You are required to: (a) Prepare the working paper entry on December 31, 2021, to establish reciprocity and convert to the equity method. Answer: Debit Credit Investment account [A] Retained earnings - P [B] (b) Prepare the working paper elimination entries on December 31, 2021, to eliminate the investment account. Answer: Debit Credit [C] [D] Common stock Retained earnings Difference - implied and book values Noncontrolling interest Investment in S company [E] [F] [G] (c) Prepare the working paper elimination entries on December 31, 2021, to eliminate the intercompany dividends: Answer: Debit Credit (H) Dividend income - P Dividend declared - S U (c) Prepare the working paper elimination entries on December 31, 2021, to eliminate the intercompany dividends: Answer: Debit Credit [H] Dividend income - P Dividend declared - S [U (d) Noncontrolling interest to be included on the Balance Sheet on December 31, 2021 - Hint: Take the noncontrolling interest amount you found in (b), and add the non-controlling interest share in Sincome for the year ended December 31, 2021 after deducting dividends to non-controlling interest Answer: [J] On January 1, 2017, P purchased 80% of the common stock of S for $80,000. S had common stock of $80,000 and retained earnings of $12,000 at that time. On December 31, 2021, the trial balances of the two companies were: S Cash 13,000 14,000 Accounts receivable 37,000 36,000 Investment in S Company 80,000 0 Plant and equipment 60,000 45,000 Land 18,000 12,000 Dividends declared 10,000 12,000 Inventory, 12/31 59,600 15,000 Cost of Sales and Expenses 50,000 30,000 Total debits 314,600 164,000 Liabilities 10,000 6,000 Common stock 120,000 80,000 Retained earnings 55,000 30,000 Sales 120,000 48,000 Dividend income 9,600 0 Total credits 314,600 164,000 Any difference between book value and the value implied by the purchase price relates to Land. You are required to: (a) Prepare the working paper entry on December 31, 2021, to establish reciprocity and convert to the equity method. Answer: Debit Credit Investment account [A] Retained earnings - P [B] (b) Prepare the working paper elimination entries on December 31, 2021, to eliminate the investment account. Answer: Debit Credit [C] [D] Common stock Retained earnings Difference - implied and book values Noncontrolling interest Investment in S company [E] [F] [G] (c) Prepare the working paper elimination entries on December 31, 2021, to eliminate the intercompany dividends: Answer: Debit Credit (H) Dividend income - P Dividend declared - S U (c) Prepare the working paper elimination entries on December 31, 2021, to eliminate the intercompany dividends: Answer: Debit Credit [H] Dividend income - P Dividend declared - S [U (d) Noncontrolling interest to be included on the Balance Sheet on December 31, 2021 - Hint: Take the noncontrolling interest amount you found in (b), and add the non-controlling interest share in Sincome for the year ended December 31, 2021 after deducting dividends to non-controlling interest Answer: [J]

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