Advanced Accounting Project

Advanced Accounting Project
Due November 14 – Submit through blackboard
Power Corporation acquired 90% of Snyder Company’s 1,250 shares of outstanding $100 par common
stock on July 1, 2016 for $198,000. The excess of the current fair value of Snyder’s identifiable net assets
over the carrying amounts on July 1, 2016, was attributable as follows:
To inventories (fifo)
To equipment
(five year remaining life) $4,000
5,000 In addition, on July 1, 2016, Power acquired in the open market for $42,000, $39,000 of Snyder
Company’s 6% bonds payable at a yield of 5%. Interest is payable by Snyder each June 30 and
December 31.
Separate financial statements for Power Corporation and Snyder Company for the periods ended
December 31, 2016, were as follows:
Power
(year ended
12/31/2016)
Revenue:
Net Sales
Interest Revenue
Income of Subsidiary
Cost/Expenses/Losses:
Cost of Goods Sold
Operating Expenses
Interest Expense
Gain on Sale of Equipment
Net Income
Retained Earnings, Beginning of Period
Add: Net Income
Subtotal
Less: Dividends Declared
Retained Earnings, End of Period $960,150
1,050
18,000
$979,200
$770,000
121,140 Snyder
(six months
ended 12/31/2016)
$505,000
_______
$505,000 5,000
$896,140
$83,060 $384,000
98,450
2,550
_______
$485,000
$20,000 $220,000
83,060
$303,060
36,000
$267,060 $50,000
20,000
$70,000
9,000
$61,000 Assets
Intercompany Accounts Receivable
Inventory (fifo)
Investment in Snyder Stock
Investment in Snyder Bonds
Plant Assets
Accumulated Depreciation on Plant Assets
Other Assets
Total Assets $100
254,835
207,900
41,790
794,000
(260,000)
613,775
$1,652,400 $75,000 280,600
(30,000)
73,400
$399,000 Liabilities and Equity
Intercompany Accounts Payable
Bonds Payable
Other Liabilities
Common Stock, $100 par
Excess Paid In Capital
Retained Earnings
Total Liabilities and Equity $600,000
376,340
360,000
49,000
267,060
$1,652,400 $100
85,000
115,900
125,000
12,000
61,000
$399,000 Additional Information:
1. During 2016 Power sold to Snyder inventory for $60,000 that had cost Power $40,000. Snyder
held $18,000 of this purchase in inventory at the end of the year.
2. During 2016 Snyder sold to Power inventory for $100,000 that had cost Snyder $80,000. Power
held $20,000 of this purchase in inventory at the end of the year.
3. On October 1, 2016, Power had sold to Snyder for $20,000 equipment having a carrying amount
of $15,000 on that date. Snyder established a five-year remaining economic life, no residual
value, and the straight-line method of depreciation for the equipment. Snyder includes
depreciation expense in operating expenses.
4. Goodwill was unimpaired as of December 31, 2016.
Required:
1. Prepare the journal entries for Power to acquire the ownership in Snyder and prepare the
entries made by Power under the simple equity method. Prove that the ending amounts for the
investment account and the income of subsidiary account are correct as shown in the financial
statements.
2. Prepare a working paper for a consolidated income statement, statement of retained earnings,
and balance sheet for the year ending December 31, 2016. You will need to convert the financial
statements given into trial balances for the worksheet – meaning that the beginning retained
earnings should be shown on the trial balance together with all asset, liability, equity, revenue,
expense, and dividend accounts – as though the books had not been closed.