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Prepare Necessary Entries Using Equity Method

Peerless Products acquired all of Special Foods' common stock for $300,000 on January 1, 20X1. Special Foods had $200,000 in common stock and $100,000 in retained earnings. The entries record Peerless' initial investment, Special Foods declaring a dividend, and Peerless' share of Special Foods' net income, which increases the value of its investment.

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Jenelle Acedillo Reyes
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115 views4 pages

Prepare Necessary Entries Using Equity Method

Peerless Products acquired all of Special Foods' common stock for $300,000 on January 1, 20X1. Special Foods had $200,000 in common stock and $100,000 in retained earnings. The entries record Peerless' initial investment, Special Foods declaring a dividend, and Peerless' share of Special Foods' net income, which increases the value of its investment.

Uploaded by

Jenelle Acedillo Reyes
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Assume that on January 1, 20X1, Peerless Products Corporation

acquires all of the common stock of Special Foods Inc. for


$300,000, an amount equal to the book value of Special Foods
on that date. At that time, Special Foods has $200,000 of
common stock outstanding and retained earnings of $100,000.

Following information is available:

Prepare necessary entries using equity method.


January 1, 20X1

Investment in Special Foods Stock 300,000


Cash 300,000

December 31,20X1

Cash 30,000
Investment in Special Foods Stock 30,000

Investment in Special Foods Stock 50,000


Income from Subsidiary 50,000

Eliminating Entries:

Income from Subsidiary 50,000


Dividends Declared 30,000
Investment in Special Foods Stock 20,000
Common Stock—Special Foods 200,000
Retained Earnings 100,000
Investment in Special Foods Stock 300,000

January 1, 20X2

Cash 40,000
Investment in Special Foods Stock 40,000

Investment in Special Foods Stock 75,000


Income from Subsidiary 75,000

Eliminating Entries

Income from Subsidiary 75,000


Dividends Declared 40,000
Investment in Special Foods Stock 35,000

Common Stock—Special Foods 200,000


Retained Earnings, January 1 120,000
Investment in Special Foods Stock 320,000

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