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Consolidated Workpaper, Equity Method

(Note that this is the same problem as Problem 4-7, but assuming the use of the partial
equity
method.)
Price Company purchased 90% of the outstanding common stock of Score Company on
January 1, 2006, for $450,000. At that time, Score Company had stockholders’ equity
consisting of
common stock, $200,000; other contributed capital, $160,000; and retained earnings,
$90,000.
On December 31, 2010, trial balances for Price Company and Score Company were as
follows:
Price Score
Cash $ 109,000 $ 78,000
Accounts Receivable 166,000 94,000
Note Receivable 75,000 —0—
Inventory 309,000 158,000
Investment in Score Company 633,600 —0—
Plant and Equipment 940,000 420,000
Land 160,000 70,000
Dividends Declared 70,000 50,000
Cost of Goods Sold 822,000 242,000
Operating Expenses 250,500 124,000
Total Debits $3,535,100 $1,236,000
Accounts Payable $ 132,000 $ 46,000
Notes Payable 300,000 120,000
Common Stock 500,000 200,000
Other Contributed Capital 260,000 160,000
Retained Earnings, 1/1 795,000 210,000
Sales 1,420,000 500,000
Equity in Subsidiary Income 120,600 —0—
Interest Income 7,500 —0—
Total Credits $3,535,100 $1,236,000
LO5
Price Company’s note receivable is receivable from Score Company. Interest of $7,500
was
paid by Score to Price during 2010. Any difference between book value and the value
implied
by the purchase price relates to goodwill.
Required:
Prepare a consolidated statements workpaper on December 31, 2010
Price Company and Subsidiary
Consolidated Statements Workpaper
Workpaper - Equity Method For the Year Ended December 31, 2010

Price Score Eliminating Entries Noncontrolling Consolidated

Company Company Dr. Cr. Interest Balance
Income Statement
Sales 1,420,000 500,000 1,920,000
Equity in Subsidiary Income 120,600 (1) 120,600
Interest Income 7,500 (3) 7,500
Total Revenue 1,548,100 500,000 1,920,000
Cost of Goods Sold 822,000 242,000 1,064,000
Other Expenses 250,500 124,000 (3) 7,500 367,000
Total Cost and Expense 1,072,500 366,000 1,431,000
Net Income 475,600 134,000 489,000
Noncontrolling Interest 13,400 * (13,400)
Net Income to Retained Earnings 475,600 134,000 128,100 7,500 13,400 475,600

Retained Earnings Statement

Retained Earnings 1/1
Price Company 795,000 795,000
Score Company 210,000 (4) 210,000
Net Income from above 475,600 134,000 128,100 7,500 13,400 475,600
Dividends Declared
Price Company (70,000) (70,000)
Score Company (50,000) (1) 45,000 (5,000)
Retained Earnings 12/31 1,200,600 294,000 338,100 52,500 8,400 1,200,600

* $134,000  .10 = $13,400.

Price Score Eliminating Entries Noncontrolling Consolidated

Company Company Dr. Cr. Interest Balance
Balance Sheet
Cash 109,000 78,000 187,000
Accounts Receivable 166,000 94,000 260,000
Note Receivable 75,000 (2) 75,000
Inventory 12/31 309,000 158,000 467,000
Investment in Score 633,600 (4) 558,000
(1) 75,600
Difference b/w Implied & Book (4) 50,000 (5) 50,000
Value
Plant and Equipment 940,000 420,000 1,360,000
Land 160,000 70,000 230,000
Goodwill (5) 50,000 50,000
 Total 2,392,600 820,000 2,554,000

Accounts Payable 132,000 46,000 178,000

Notes Payable 300,000 120,000 (2) 75,000 345,000
Common Stock:
Price Company 500,000 500,000
Score Company 200,000 (4) 200,000
Other Contributed Capital
Price Company 260,000 260,000
Score Company 160,000 (4) 160,000
Retained Earnings from above 1,200,600 294,000 338,100 52,500 8,400 1,200,600
Noncontrolling Interest 1/1 (4) 62,000** 62,000
Noncontrolling Interest 12/31 70,400 70,400
Total 2,392,600 820,000 873,100 873,100 2,554,000

** $50,000 + [($210,000 – $90,000) x .10] = $62,000

(1) To eliminate intercompany income and dividends

(2) To eliminate intercompany receivables and payables
(3) To eliminate intercompany interest expense and income
(4) To eliminate investment in Score company and create noncontrolling interest account
(5) To allocate the difference between implied and book value

Computation and Allocation of Difference between Implied and Book Value Acquired
Parent Non- Entire
Share Controlling Value
Share
Purchase price and implied value 450,000 50,000 500,000 *
Less: Book value of equity acquired: 405,000 45,000 450,000
Difference between implied and book value 45,000 5,000 50,000
Goodwill (45,000) (5,000) (50,000)
Balance -0- -0- -0-

*$450,000/.90