Question

Problem 4-2 (Essay) Parry Corporation acquired a 100% interest in Sent Company on January 1, 2011,...

Problem 4-2 (Essay)

Parry Corporation acquired a 100% interest in Sent Company on January 1, 2011, paying $140,000. Financial statement data for the two companies for the year ended December 31, 2011 follow:

Income Statement Parry Sent
Sales $476,000 $154,500
Cost of goods sold 285,600 121,000
Other expense 45,500 29,500
Dividend income 3,500 —0—
Retained Earnings Statement
Balance, 1/1 76,000 19,500
Net income 148,400 4,000
Dividends declared 17,500 3,500
Balance Sheet
Cash 84,400 29,000
Accounts receivable 76,000 56,500
Inventory 49,500 36,500
Investment in Sent Company 140,000 —0—
Land 4,000 12,000
Accounts payable 27,000 14,000
Common stock 120,000 100,000
Retained earnings 206,900 20,000


(a) What method is being used by Parry to account for its investment in Sent Company? How can you tell?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

A.

Observation:

The dividend income received by Parry from Sent ($3500) is added to the Net Income(Or Reserves and Surplus) rather than deducting the same from Cost of Investment in Sent Company. Income from Investee Company is recognized in Statement of Profit and Loss.

Method of Accounting Investment:

Under Cost Method, any Income Received from Investment is recognized as direct income. No adjustment is made to the cost of Investment.

Conclusion:

Investment is accounted as per Cost Method.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Parry Corporation acquired a 100% interest in Sent Company on January 1, 2011, paying $139,100. Financial...
Parry Corporation acquired a 100% interest in Sent Company on January 1, 2011, paying $139,100. Financial statement data for the two companies for the year ended December 31, 2011 follow: Income Statement Parry Sent Sales $478,800 $153,700 Cost of goods sold 285,700 120,600 Other expense 45,600 29,500 Dividend income 3,400 —0— Retained Earnings Statement Balance, 1/1 75,400 19,300 Net income 150,900 3,600 Dividends declared 17,500 3,400 Balance Sheet Cash 84,400 29,300 Accounts receivable 76,200 56,300 Inventory 49,900 36,400 Investment in...
Problem 4-6 On January 1, 2011, Plank Company purchased 80% of the outstanding capital stock of...
Problem 4-6 On January 1, 2011, Plank Company purchased 80% of the outstanding capital stock of Scoba Company for $52,300. At that time, Scoba’s stockholders’ equity consisted of capital stock, $54,300; other contributed capital, $5,000; and retained earnings, $4,100. On December 31, 2015, the two companies’ trial balances were as follows: Plank Scoba Cash $41,800 $22,000 Accounts Receivable 21,000 17,100 Inventory 14,900 8,100 Investment in Scoba Company 68,940 —0— Land 52,800 47,000 Dividends Declared 9,900 7,760 Cost of Goods Sold...
On January 1, 2014, Penelope Company acquired a 100% interest in Leah Company for $200,000 cash....
On January 1, 2014, Penelope Company acquired a 100% interest in Leah Company for $200,000 cash. On January 1, 2014, Leah Company had the following assets and liabilities: Book Value Fair Value Cash $10,000 $10,000 Accounts Receivable 30,000 35,000 Inventory 40,000 50,000 Plant Assets 60,000 80,000 Total Assets $140,000 $175,000 Liabilities $25,000 $25,000 Capital Stock 100,000 Retained Earnings 15,000 Total Liabilities & Stockholders' Equity $140,000 Penelope used push down accounting to account for the acquisition. The total amount of push-down...
Jersey Corporation acquired 100 percent of Lime Company on January 1, 20X7, for $201,000. The trial...
Jersey Corporation acquired 100 percent of Lime Company on January 1, 20X7, for $201,000. The trial balances for the two companies on December 31, 20X7, included the following amounts: Jersey Corporation Lime Company   Item Debit Credit Debit Credit   Cash $ 82,000 $ 32,000   Accounts Receivable 68,000 73,000   Inventory 174,000 119,000   Land 80,000 27,000   Buildings and Equipment 491,000 153,000   Investment in Lime Co. Stock 254,000   Cost of Goods Sold 491,000 252,000   Depreciation Expense 22,000 12,000   Other Expenses 69,000 69,000   Dividends Declared...
Prime Corporation acquired 100 percent ownership of Steak Products Company on January 1, 20X1, for $255,000....
Prime Corporation acquired 100 percent ownership of Steak Products Company on January 1, 20X1, for $255,000. On that date, Steak reported retained earnings of $72,000 and had $111,000 of common stock outstanding. Prime has used the equity-method in accounting for its investment in Steak. The trial balances for the two companies on December 31, 20X5, appear below. Prime Corporation Steak Products Company Item Debit Credit Debit Credit Cash & Receivables $ 54,000 $ 76,000 Inventory 271,000 101,000 Land 91,000 91,000...
Assume that your company acquired a subsidiary on January 1, 2012. The purchase price was $700,000...
Assume that your company acquired a subsidiary on January 1, 2012. The purchase price was $700,000 in excess of the subsidiary's book value of Stockholders' Equity on the acquisition date, and that excess was assigned to the following [A] assets: [A] Asset Original Amount Original Useful Life (years) Property, plant and equipment (PPE), net $350,000 20 Goodwill 350,000 Indefinite $700,000 The AAP asset relating to undervalued PPE with a 20-year useful life has been depreciated as part of the parent's...
On January 1, 2017, Gardner, Inc. acquired 100 percent of the common stock of Drake Company...
On January 1, 2017, Gardner, Inc. acquired 100 percent of the common stock of Drake Company for $760,000 in cash and other fair-value consideration. Gardner Company fair value was allocated among its net assets as follows: The December 31, 2018 trial balance for the parent and subsidiary follows: Fair value of consideration transferred for Drake Company $760,000 Book value of Drake Company Common stock an APIC $130,000 Retained Earnings $370,000 $500,000 Excess Fair value over book value to: Trademark (10-year...
On January 2, 20X8, Johnson Company acquired a 100% interest in the capital stock of Perth...
On January 2, 20X8, Johnson Company acquired a 100% interest in the capital stock of Perth Company for $3,100,000. Any excess cost over book value is attributable to a patent with a 10-year remaining life. At the date of acquisition, Perth's balance sheet contained the following information: Foreign Currency Units (FCU)   Foreign Currency Units (FCU) Cash 40,000 Accounts Payable 200,000   Receivables (net) 150,000 Capital Stock 600,000 Inventories (FIFO) 500,000 Retained Earnings 1,390,000 PPE (net) 1,500,000 Total: 2,190,000   Total:   2,190,000 Perth's...
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800...
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800 cash. As of that date Hurley has the following trial balance: Debit Credit Cash $500 Accounts Receivable 600 Inventory 800 Buildings (net) (5 year life) 1,500 Equipment (net) (2 year life) 1,000 Land 900 Accounts Payable $400 Long-term liabilities (due 12/31/13) 1,800 Common Stock 1,000 Additional paid-in capital 600 Retained earnings 1,500 Total $5,300 $5,300 Net income and dividends reported by Hurley for 2010...
Power Corporation acquired 100 percent ownership of Upland Products Company on January 1, 20X1, for $200,000....
Power Corporation acquired 100 percent ownership of Upland Products Company on January 1, 20X1, for $200,000. On that date, Upland reported retained earnings of $50,000 and had $100,000 of common stock outstanding. Power has used the equity method in accounting for its investment in Upland. The trial balances for the two companies on December 31, 20X5, appear below. Power Corporation Upland Products Company Item Debit Credit Debit Credit Cash & Receivables $ 43,000 $ 65,000 Inventory 260,000 90,000 Land 80,000...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT