Question

Trim Corporation acquired 100 percent of Round Corporation’s voting common stock on January 1, 20X2, for $405,000. At that date, the book values and fair values of Round’s assets and liabilities were equal. Round reported the following summarized balance sheet data:

Assets	$	707,000		Accounts Payable	$	94,000
				Bonds Payable		208,000
				Common Stock		118,000
				Retained Earnings		287,000
Total	$	707,000		Total	$	707,000

Round reported net income of $77,000 for 20X2 and paid dividends of $19,000.

Required:
a. Give the journal entries recorded by Trim Corporation during 20X2 on its books if Trim accounts for its investment in Round using the equity method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the initial investment in Round Corporation.

2. Record Trim Corp.'s 100% share of Round Corp.'s 20X2 income.

3. Record Trim Corp.'s 100% share of Round Corp.'s 20X2 dividend.

b. Give the consolidation entries needed at December 31, 20X2, to prepare consolidated financial statements. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

1. Record the basic consolidation entry.

Answer 1

Ans: Journal Entry

Date	Account title and explanation	Debit($)	Credit($)
	Investment in Round corporation	405,000
	Cash		405,000
	{ to record initial investment in Round Corporation}
	Investment in Round Corporation	77,000
	Income from round corporation		77,000
	{ to record Trim Corp.'s 100% share of Round Corp.'s 20X2 income}
	Cash	19,000
	Investment in Round corporation		19,000
	{ to record Share of dividend in round corporation}

2. Consolidation Entry

Date	Account title and explanation	Debit($)	Credit($)
	Common Stock	118,000
	Retained Earnings	287,000
	Income from Round corporation	77,000
	Dividends Declared		19,000
	Investment in round corporation		463,000
	{ to record basic consolidation entry}