Question

On January 1, 20X9, Peery Company acquired 100 percent of Standard Company's common shares at underlying book value. Peery uses the equity method in accounting for its ownership of Standard. On December 31, 20X9, the trial balances of the two companies are as follows:

                                            Peery Co.                               Standard Co.

Item                          Debit				Credit			Debit                        Credit
Current Assets   $ 238,000							$    95,000
Depreciable Assets		300,000					170,000
Investment in Standard Co.		100,000
Other Expenses			90,000					70,000
Depreciation Expense			30,000					17,000
Dividends Declared			32,000					10,000
Accumulated Depreciation					$	120,000		$	85,000
Current Liabilities						50,000			30,000
Long-Term Debt						120,000			50,000
Common Stock						100,000			50,000
Retained Earnings						175,000			35,000
Sales						200,000			112,000
Income from Standard Co.						25,000

                             $ 790,000    $ 790,000      $ 362,000      $ 362,000  

Required:

1. Prepare the journal entry to record the dividends received during year one .
2. Prepare the journal entry to record the effect of income from subsidiary on the parent’s investments.
3. Prepare the consolidation entry necessary to prepare the worksheet at the end of year one.
4. Prepare a schedule to show your book value calculations.

Answer 1