9/1/2020 Assignment Print View

35/35 100

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Score: Points %

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4. Award: 5 out of 5.00 points  

Pony Corporation acquired all of Stallion Company’s common shares on January 1, 20X5, for $180,000. On that date, the book value of the
net assets reported by Stallion was $150,000. The entire differential was assigned to depreciable assets with a six-year remaining economic

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life from January 1, 20X5.

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The adjusted trial balances for the two companies on December 31, 20X5, are as follows:

Pony Corporation Stallion Company

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Item Debit Credit Debit Credit

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Cash $ 15,000 $ 5,000

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Accounts Receivable 30,000 40,000
Inventory 70,000 60,000
Depreciable Assets (net) 325,000 225,000

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Investment in Stallion Company 195,000
Depreciation Expense 25,000 15,000
Other Expenses 105,000 75,000

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Dividends Declared 40,000 10,000
Accounts Payable $ 50,000 $ 40,000

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Notes Payable 100,000 120,000
Common Stock 200,000 100,000
Retained Earnings 230,000 50,000

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Sales 200,000 120,000
Income from Stallion Company 25,000

co rc $ 805,000 $ 805,000 $ 430,000 $ 430,000

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Pony uses the equity method in accounting for its investment in Stallion. Stallion declared and paid dividends on December 31, 20X5.
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Required:
a. Prepare the consolidation entries needed as of December 31, 20X5, to complete a consolidation worksheet. (If no entry is required for a
transaction/event, select "No journal entry required" in the first account field.)
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No Entry Accounts Debit Credit

A 1 Common stock  100,000 

Retained earnings  50,000 

Income from Stallion Company  30,000 

Dividends declared  10,000 

Investment in Stallion Company  170,000 

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B 2 Depreciation expense  5,000 

Income from Stallion Company  5,000 

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C 3 Depreciable assets  30,000 

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Accumulated depreciation  5,000 

Investment in Stallion Company 25,000

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 

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b. Prepare a three-part consolidation worksheet as of December 31, 20X5. (Values in the first two columns (the "parent" and "subsidiary"
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balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns
should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one
amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter
this amount in the credit column of the worksheet.)
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PONY CORPORATION AND SUBSIDIARY

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Consolidated Financial Statements Worksheet

December 31, 20X5
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Consolidation Entries
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Stallion
Pony Corp. DR CR Consolidated
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Income Statement
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Income Statement
Sales $ 200,000  $ 120,000  $ 320,000
Less: Depreciation expense (25,000)  (15,000)  5,000  (45,000)
Less: Other expenses (105,000)  (75,000)  (180,000)
Income from Stallion Co. 25,000  0 30,000  5,000  0
Net income $ 95,000 $ 30,000 $ 35,000 $ 5,000 $ 95,000
Statement of retained earnings

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Beginning balance $ 230,000  $ 50,000  $ 50,000  $ 230,000

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Net income 95,000 30,000 35,000 5,000 95,000
Less: Dividends declared (40,000)  (10,000)  10,000  (40,000)

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Ending balance $ 285,000 $ 70,000 $ 85,000 $ 15,000 $ 285,000

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Assets

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Cash $ 15,000  $ 5,000  $ 20,000
Accounts receivable 30,000 40,000

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  70,000
Inventory 70,000  60,000  130,000
Depreciable assets (net) 325,000  225,000  30,000  5,000  575,000

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Investment in Stallion Co. 195,000  0 195,000  0

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Total assets $ 635,000 $ 330,000 $ 30,000 $ 200,000 $ 795,000
Liabilities & Stockholder's
Equity

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Accounts payable $ 50,000  $ 40,000  $ 90,000
Notes payable
co rc 100,000  120,000  220,000
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Common stock 200,000  100,000  100,000  200,000
Retained earnings 285,000 70,000 85,000 15,000 285,000
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Total Liabilities & Equity $ 635,000 $ 330,000 $ 185,000 $ 15,000 $ 795,000
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References
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Consolidating Entries Difficulty: 2 Medium Learning Objective: 04-05 Prepare equity-method journal
entries, consolidation entries, and the consolidation
worksheet for a wholly owned subsidiary when there is a
complex positive differential.

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Pony Corporation acquired all of Stallion Company’s common shares on January 1, 20X5, for $180,000. On that date, the book value of the
net assets reported by Stallion was $150,000. The entire differential was assigned to depreciable assets with a six-year remaining economic
life from January 1, 20X5.

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The adjusted trial balances for the two companies on December 31, 20X5, are as follows:

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Pony Corporation Stallion Company
Item Debit Credit Debit Credit

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Cash $ 15,000 $ 5,000
Accounts Receivable 30,000 40,000
Inventory 70,000 60,000

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Depreciable Assets (net) 325,000 225,000
Investment in Stallion Company 195,000
Depreciation Expense 25,000 15,000

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Other Expenses 105,000 75,000
Dividends Declared 40,000 10,000
Accounts Payable $ 50,000 $ 40,000

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Notes Payable 100,000 120,000
Common Stock
Retained Earnings co rc 200,000
230,000
100,000
50,000
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Sales 200,000 120,000
Income from Stallion Company 25,000
$ 805,000 $ 805,000 $ 430,000 $ 430,000
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Pony uses the equity method in accounting for its investment in Stallion. Stallion declared and paid dividends on December 31, 20X5.
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Required:
a. Prepare the consolidation entries needed as of December 31, 20X5, to complete a consolidation worksheet. (If no entry is required for a
transaction/event, select "No journal entry required" in the first account field.)
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9/1/2020 Assignment Print View

No Entry Accounts Debit Credit

A 1 Common stock 100,000
Retained earnings 50,000
Income from Stallion Company 30,000
Dividends declared 10,000
Investment in Stallion Company 170,000

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B 2 Depreciation expense 5,000
Income from Stallion Company 5,000

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C 3 Depreciable assets 30,000

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Accumulated depreciation 5,000
Investment in Stallion Company 25,000

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b. Prepare a three-part consolidation worksheet as of December 31, 20X5. (Values in the first two columns (the "parent" and
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"subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation
Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all
debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into
one amount and enter this amount in the credit column of the worksheet.)
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PONY CORPORATION AND SUBSIDIARY

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Consolidated Financial Statements Worksheet

December 31, 20X5
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Consolidation Entries
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Pony Corp. Stallion Co. DR CR Consolidated

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Income Statement
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Income Statement
Sales $ 200,000 $ 120,000 F
$ 320,000
Less: Depreciation expense (25,000) (15,000) 5,000 F
(45,000)
Less: Other expenses (105,000) (75,000) F
(180,000)
Income from Stallion Co. 25,000 30,000 5,000 F
0
Net income F
$ 95,000 F
$ 30,000 F
$ 35,000 F
$ 5,000 F
$ 95,000
Statement of retained earnings

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Beginning balance $ 230,000 $ 50,000 $ 50,000 F
$ 230,000

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Net income F
95,000 F
30,000 F
35,000 F
5,000 F
95,000
Less: Dividends declared (40,000) (10,000) 10,000 F
(40,000)

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Ending balance F
$ 285,000 F
$ 70,000 F
$ 85,000 F
$ 15,000 F
$ 285,000

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Assets

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Cash $ 15,000 $ 5,000 F
$ 20,000
Accounts receivable 30,000 40,000

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F
70,000
Inventory 70,000 60,000 F
130,000
Depreciable assets (net) 325,000 225,000 30,000 5,000 575,000

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F

Investment in Stallion Co. 195,000 195,000 F

0

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Total assets F
$ 635,000 F
$ 330,000 F
$ 30,000 F
$ 200,000 F
$ 795,000
Liabilities & Stockholder's Equity

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Accounts payable $ 50,000 $ 40,000 F
$ 90,000
Notes payable
Common stock co rc 100,000
200,000
120,000
100,000 100,000
F
220,000
200,000
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F

Retained earnings F
285,000 F
70,000 F
85,000 F
15,000 F
285,000
Total Liabilities & Equity $ 635,000 $ 330,000 $ 185,000 $ 15,000 $ 795,000
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F F F F F
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Explanation:
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a.
Equity Method Entries on Pony Corp.'s Books:
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Event General Journal Debit Credit

Investment in Stallion Co. 180,000
Cash 180,000
Record the initial investment in Stallion Co.

Event General Journal Debit Credit

Investment in Stallion Co. 30,000
Income from Stallion Co. 30,000

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Record Pony Corp.'s 100% share of Stallion Co.'s 20X5 income

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Event General Journal Debit Credit
Cash 10,000
Investment in Stallion Co. 10,000

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Record Pony Corp.'s 100% share of Stallion Co.'s 20X5 dividend

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Event General Journal Debit Credit
Income from Stallion Co. 5,000

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Investment in Stallion Co. 5,000

Record amortization of excess acquisition price

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Book Value Calculations:
Total Book Common Retained

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= +
Value Stock Earnings
Beginning book value 150,000 100,000 50,000

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+ Net Income 30,000 30,000
− Dividends (10,000) (10,000)
Ending book value
co rc 170,000 100,000 70,000
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Excess Value (Differential) Calculations:
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Depreciable
= +
Total Assets Acc. Depr.
Beginning balance 30,000 30,000 0
Changes (5,000) (5,000)
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Ending balance 25,000 30,000 (5,000)

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Investment in Stallion Co.

Acquisition Price 180,000
100% Net Income 30,000
10,000 100% Dividends
5,000 Excess Val. Amort.
Ending Balance 195,000
170,000 Basic
25,000 Excess Reclass.
0

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Income from Stallion Co.

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30,000 100% Net Income
Excess Val. Amort. 5,000

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25,000 Ending Balance
Basic 30,000

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5,000 Excess Reclass.
0

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