Problem 6-31 [LO3] Smith, Inc., has the following stockholders equity accounts as of January 1, 2013: Preferred stock $140 par, nonvoting and nonparticipating, 7 percent cum

Problem 6-31 [LO3]

Smith, Inc., has the following stockholders’ equity accounts as of January 1, 2013:

Preferred stock—$140 par, nonvoting and

nonparticipating, 7 percent cumulative dividend

$ 2,170,000

Common stock—$25 par value 4,170,000

Retained earnings 10,170,000

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Haried Company purchases all of Smith’s common stock on January 1, 2013, for $14,400,000. The preferred stock remains in the hands of outside parties. Any excess acquisition-date fair value will be assigned to franchise contracts with a 30-year life.

During 2013, Smith reports earning $620,000 in net income and pays $530,000 in cash dividends. Haried applies the equity method to this investment.

a. What is the noncontrolling interest’s share of consolidated net income for this period?

Net income – non-controlling interest’s share $

b. What is the balance in the Investment in Smith account as of December 31, 2013?

Investment in Smith account $

c. What consolidation entries are needed for 2013?

General Journal Debit Credit

Entry S and A combined

(Click to select)Investment in SmithEquity Income of SubsidiaryNoncontrolling Interest in Smith, IncFranchisesRetained Earnings, 1/1/13 (Smith)Common Stock (Smith)Preferred Stock (Smith)Amortization ExpenseDividends Paid

(Click to select)Retained Earnings, 1/1/13 (Smith)Investment in SmithDividends PaidAmortization ExpenseEquity Income of SubsidiaryPreferred Stock (Smith)Noncontrolling Interest in Smith, IncFranchisesCommon Stock (Smith)

(Click to select)FranchisesPreferred Stock (Smith)Equity Income of SubsidiaryAmortization ExpenseCommon Stock (Smith)Retained Earnings, 1/1/13 (Smith)Investment in SmithDividends PaidNoncontrolling Interest in Smith, Inc

(Click to select)Noncontrolling Interest in Smith, IncEquity Income of SubsidiaryInvestment in SmithCommon Stock (Smith)Preferred Stock (Smith)Retained Earnings, 1/1/13 (Smith)FranchisesAmortization ExpenseDividends Paid

(Click to select)Common Stock (Smith)Preferred Stock (Smith)Dividends PaidInvestment in SmithEquity Income of SubsidiaryRetained Earnings, 1/1/13 (Smith)Amortization ExpenseFranchisesNoncontrolling Interest in Smith, Inc

(Click to select)FranchisesPreferred Stock (Smith)Dividends PaidInvestment in SmithNoncontrolling Interest in Smith, IncEquity Income of SubsidiaryRetained Earnings, 1/1/13 (Smith)Common Stock (Smith)Amortization Expense

Entry I

(Click to select)Noncontrolling Interest in Smith, IncCommon Stock (Smith)Preferred Stock (Smith)Investment in SmithRetained Earnings, 1/1/13 (Smith)Amortization ExpenseFranchisesEquity income of subsidiaryDividends Paid

(Click to select)Preferred Stock (Smith)Noncontrolling Interest in Smith, IncInvestment in SmithDividends PaidRetained Earnings, 1/1/13 (Smith)Equity Income of SubsidiaryAmortization ExpenseFranchisesCommon Stock (Smith)

Entry D

(Click to select)Retained Earnings, 1/1/13 (Smith)Common Stock (Smith)FranchisesInvestment in SmithDividends PaidEquity Income of SubsidiaryPreferred Stock (Smith)Noncontrolling Interest in Smith, IncAmortization Expense

(Click to select)Noncontrolling Interest in Smith, IncCommon Stock (Smith)Amortization ExpenseEquity Income of SubsidiaryInvestment in SmithRetained Earnings, 1/1/13 (Smith)Dividends PaidFranchisesPreferred Stock (Smith)

Entry E

(Click to select)Common Stock (Smith)Investment in SmithNoncontrolling Interest in Smith, IncFranchisesDividends PaidAmortization ExpenseEquity Income of SubsidiaryRetained Earnings, 1/1/13 (Smith)Preferred Stock (Smith)

(Click to select)Amortization ExpenseEquity Income of SubsidiaryDividends PaidCommon Stock (Smith)Retained Earnings, 1/1/13 (Smith)Investment in SmithFranchisesPreferred Stock (Smith)Noncontrolling Interest in Smith, Inc

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