E44Eliminating Entries after First and Second
E4.4 Eliminating Entries after First and Second Years
a. Calculation of equity in net income for 2014:
Safeco’s reported net income
$ 1,600,000
Revaluation writeoffs:
Equipment $500,000/5
(100,000)
Inventory
(200,000)
Goodwill impairment loss (50,000)
Equity in net income of Safeco
$ 1,250,000
Peerless’s entries for 2014: Investment in Safeco
8,000,000
Cash
8,000,000 Investment in Safeco
1,250,000
Equity in net income of Safeco
1,250,000 Cash
600,000
Investment in Safeco
600,000
Calculation of goodwill is as follows:
Acquisition cost
$ 8,000,000
Book value of Safeco
(7,000,000)
Excess of acquisition cost over book value
1,000,000
Fair value less book value:
Equipment
$ 500,000
Inventory
200,000
(700,000)
Goodwill
$ 300,000
Consolidation working paper eliminating entries for 2014:
(C)
Equity in net income of Safeco
1,250,000
Dividends – Safeco
600,000
Investment in Safeco
650,000
(E)
Stockholders’ equity—Safeco, 1/1
7,000,000
Investment in Safeco
7,000,000
(R)
Equipment, net
500,000
Inventory
200,000
Goodwill
300,000
Investment in Safeco
1,000,000
(O)
Depreciation expense
100,000
Cost of goods sold
200,000
Goodwill impairment loss
50,000
Equipment, net
100,000
Inventory
200,000
Goodwill
50,000
b. Calculation of equity in net income for 2015:
Safeco’s reported net income
$ 2,000,000
Revaluation writeoff:
Equipment $500,000/5
(100,000)
Equity in net income of Safeco
$ 1,900,000
Peerless’s equity method entries for 2015: Investment in Safeco
1,900,000
Equity in net income of Safeco
1,900,000 Cash
800,000
Investment in Safeco
800,000
The Investment in Safeco balance at December 31, 2015 is $8,000,000 + 1,250,000 – 600,000 + 1,900,000 – 800,000 = $9,750,000.
Consolidation working paper eliminating entries for 2015:
(C)
Equity in net income of Safeco
1,900,000
Dividends – Safeco
800,000
Investment in Safeco
1,100,000
(E)
Stockholders’
a. Calculation of equity in net income for 2014:
Safeco’s reported net income
$ 1,600,000
Revaluation writeoffs:
Equipment $500,000/5
(100,000)
Inventory
(200,000)
Goodwill impairment loss (50,000)
Equity in net income of Safeco
$ 1,250,000
Peerless’s entries for 2014: Investment in Safeco
8,000,000
Cash
8,000,000 Investment in Safeco
1,250,000
Equity in net income of Safeco
1,250,000 Cash
600,000
Investment in Safeco
600,000
Calculation of goodwill is as follows:
Acquisition cost
$ 8,000,000
Book value of Safeco
(7,000,000)
Excess of acquisition cost over book value
1,000,000
Fair value less book value:
Equipment
$ 500,000
Inventory
200,000
(700,000)
Goodwill
$ 300,000
Consolidation working paper eliminating entries for 2014:
(C)
Equity in net income of Safeco
1,250,000
Dividends – Safeco
600,000
Investment in Safeco
650,000
(E)
Stockholders’ equity—Safeco, 1/1
7,000,000
Investment in Safeco
7,000,000
(R)
Equipment, net
500,000
Inventory
200,000
Goodwill
300,000
Investment in Safeco
1,000,000
(O)
Depreciation expense
100,000
Cost of goods sold
200,000
Goodwill impairment loss
50,000
Equipment, net
100,000
Inventory
200,000
Goodwill
50,000
b. Calculation of equity in net income for 2015:
Safeco’s reported net income
$ 2,000,000
Revaluation writeoff:
Equipment $500,000/5
(100,000)
Equity in net income of Safeco
$ 1,900,000
Peerless’s equity method entries for 2015: Investment in Safeco
1,900,000
Equity in net income of Safeco
1,900,000 Cash
800,000
Investment in Safeco
800,000
The Investment in Safeco balance at December 31, 2015 is $8,000,000 + 1,250,000 – 600,000 + 1,900,000 – 800,000 = $9,750,000.
Consolidation working paper eliminating entries for 2015:
(C)
Equity in net income of Safeco
1,900,000
Dividends – Safeco
800,000
Investment in Safeco
1,100,000
(E)
Stockholders’