Question

At the beginning of 2009, Presidio Company purchased 95% of the common stock of Succo Company for $533,615. On that date, Succo Company’s stockholders’ equity consisted of the following:

Common stock		$323,500
Other contributed capital		107,200
Retained earnings		131,000
Total		$561,700

During 2017, Succo Company reported net income of $43,400 and distributed dividends in the amount of $18,300. Succo Company’s retained earnings balance at the end of 2016 amounted to $158,500. Presidio Company uses the equity method.

Prepare in general journal form the workpaper entries necessary in the compilation of consolidated financial statements on December 31, 2017.

Answer 1

Solution

Presidio Co

Workpaper entries in the general journal form needed for the compilation of consolidated financial statements on December 31, 2017:

Date	Account Titles	Debit	Credit
Dec 31, 2017	Equity Income	$41,230
	Investment in Succo Company		$41,230
	(equity income = 95% x 43,400 = 41,230)
Dec 31, 2017	Investment in Succo Company	$17,385
	Dividends Declared		$17,385
	(Dividends from Succo = 95% x 18,300 = 17,385)
Dec 31, 2017	Common Stock	$323,500
	Other Contributed Capital	$107,200
	Retained Earnings, 1/1/2017	$158,500
	Investment		$559,740
	Noncontrolling Interest		$29,460

Computations:

Investment account balance, 1/1/2017 = 533,615 + 95% x (158,500 – 131,000) = $559,740

Noncontrolling interest = 561,700 x 5% + (5% x (158,500 – 131,000) = $29,460