On January 1, 2012, P Company purchased 95% of the outstandingcommon stock of S Company for $160,000. At that time, Sessions'stockholders' equity consisted of common stock, $120,000; othercontributed capital, $10,000; and retained earnings, $23,000. Anydifference between the implied value of the company and the bookvalue is attributable to goodwill. On December 31, 2012, the twocompanies' trial balances were as follows:
| | | | P | S |
| Cash | | | | 62,000 | 30,000 |
| Accounts Receivable | | | | 32,000 | 29,000 |
| Inventory | | | | 30,000 | 16,000 |
| Investment in Sessions Company | | | | 165,700 | - |
| Plant and Equipment | | | | 105,000 | 82,000 |
| Land | | | | 29,000 | 34,000 |
| Dividends Declared | | | | 20,000 | 20,000 |
| Cost of Goods Sold | | | | 130,000 | 40,000 |
| Operating Expenses | | | | 20,000 | 14,000 |
| Total Debits | | | | 593,700 | 265,000 |
| | | | | |
| Accounts Payable | | | | 19,000 | 12,000 |
| Other Liabilities | | | | 10,000 | 20,000 |
| Common Stock | | | | 180,000 | 120,000 |
| Other Contributed Capital | | | | 60,000 | 10,000 |
| Retained Earnings, 1/1 | | | | 40,000 | 23,000 |
| Sales | | | | 260,000 | 80,000 |
| Equity in earnings of Sessions | | | | 24,700 | - |
| Total Credits | | | | 593,700 | 265,000 |
PERFORM USING COST METHOD, THEN PERFORM USING EQUITYMETHOD
Step 1.Prepare a T-Account to keep track of P's Investment in S.Record the date of acquisision entry.
Step 2:Prepare the Computation and Allocation of DifferenceSchedule.
Step 3: Prepare the investment elimination entries as of thedate of acquisition and year after acquisition.
Step 4: Prepare the consolidating financial statementworkpaper.
