ACC 415 CHAPTER 7

[Document subtitle]
ACC 415_Section 001
Student: Khanh “Kai” Nguyen Professor: Jenny Teruya

ACC 415 – Fall 2018

Chapter 7 Homework

Upstream Sale
20X3 Popeye Sweet Pea
Cash 231,000 152,000
Inventory 100,000 64,000
PP&E 586,000 164,000
Accum Depr. 306,000 87,000
Investment in SP 151,200
Payables 225,000 98,000
Common Stock 100,000 60,000
Retained Earnings 290,000 90,000
Dividends Declared 30,000 10,000
Sales 400,000 150,000
Gain on Sale of Bldg 6,000
Income from SP 39,200
COGS 150,000 60,000
Depr. Exp. 44,000 17,500
S&A Exp. 68,000 23,500

Upstream Sale
20X4 Popeye Sweet Pea
Cash 301,600 187,000
Inventory 127,000 92,500
PP&E 586,000 164,000
Accum Depr. 356,000 99,500
Investment in SP 188,000
Payables 195,000 104,000
Common Stock 100,000 60,000
Retained Earnings 437,200 135,000
Dividends Declared 30,000 12,000
Sales 350,000 180,000
Income from SP 46,400
COGS 140,000 80,000
Depr. Exp. 50,000 12,500
S&A Exp. 62,000 30,500

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ACC 415_Section 001
Student: Khanh “Kai” Nguyen Professor: Jenny Teruya

On January 1, 20X3, Popeye acquired at book value, 80% of the outstanding shares of Sweet Pea
for $120,000. On that date, the fair value of the noncontrolling interest was equal to 20% of
Sweet Pea’s book value. On December 31, 20X3, Sweet Pea sold Equipment to Popeye for
$36,000. The equipment had originally been purchased by Sweet Pea four years ago for $50,000
and had an estimated life of 10 years from that date.

The preceding table shows the trial balance on December 31, 20X3 and 20X4 for Popeye and
Sweet Pea.

Required (Please support all answers with calculations. All journal entries should have a
description...for example, “to record the purchase of equipment”)
1) Give the journal entries prepared by Popeye to record the purchase of equipment
from Sweet Pea
Equipment 36,000
Cash 36,000
To record the purchase of equipment.

2) Give the journal entries prepared by Sweet Pea to record the sale of equipment to
Popeye.
Depreciation Expense 5,000
Accumulated Depreciation 5,000
To record 20X3 depreciation expense on equipment sold.
5,000 = 50,000 / 10 years

Cash 36,000
Accumulated Depreciation 20,000
Equipment 50,000
Gain on Sale of Equipment 6,000
To record the sale of equipment.

3) Give the equity method entries prepared by Popeye for 20X3 assuming the fully-
adjusted equity method is used to account for its investment in Sweet Pea
Investment in Sweet Pea 39,200
Income from Sweet Pea 39,200
To record Popeye’s share of Sweet Pea’s 20X3 Income.
49,000 * 80% = 39,200

Cash 8,000
Investment in Sweet Pea 8,000
To record Popeye’s share of Sweet Pea’s 20X3 Income.
10,000 * 80% = 8,000

Income from Sweet Pea 4,800

Investment in Sweet Pea 4,800
To defer 80% of the unrealized gain on equipment purchased from Sweet Pea.
6,000 * 80% = 4,800

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ACC 415_Section 001
Student: Khanh “Kai” Nguyen Professor: Jenny Teruya

4) Give the elimination/consolidation entries needed to prepare a consolidation

worksheet for 20X3
Common Stock 60,000
Retained Earnings 90,000
Income from Sweet Pea 34,400
NCI in NI of Sweet Pea 8,600
Dividends Declared 10,000
Investment in Sweet Pea 146,400
NCI in NA of Sweet Pea 36,600
To record the basic consolidation entries.
34,400 = 49,000 * 80% - 6,000 * 80%
8,600 = 49,000 * 20% - 6,000 * 80%
146,400 = (60,000 + 90,000) * 80% + 39,200 – 8,000 – 4,800
36,600 = 60,000 + 90,000 + 34,400 + 8,600 – 10,000 - 146,400

Accumulated Depreciation 69,600

Buildings & Equipment 69,600
To record the accumulated depreciation consolidation entry.
69,600 = 87,000 * 80%

Gain on Sale 6,000

Buildings & Equipment 14,000
Accumulated Depreciation 20,000
To record the elimination of gain on the equipment sold to Sweet Pea and correct the
Asset’s basis.
14,000 = 50,000 – 36,000
20,000 = 6,000 + 14,000

5) Determine the 20X3 end-of-year amounts that would be reported on the

consolidated financial statements for a) Consolidated Net Income, b) NCI – Income,
c) NCI – Assets, and d) PP&E (net).
a) Consolidated Net Income = 400,000 – 150,000 – 44,000 – 68,000 = 138,000

b) NCI – Income = 49,000 * 20% - 6,000 * 80% = 8,600

c) NCI – Assets = (60,000 + 90,000) * 20% + 9,800 – 2,000 – 1,200 = 36,600

d) PP&E (net) = 586,000 + 164,000 + 14,000 – 69,600 = 695,000

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ACC 415_Section 001
Student: Khanh “Kai” Nguyen Professor: Jenny Teruya

6) Give the equity method entries prepared by Popeye for 20X4 assuming the fully-
adjusted equity method is used to account for its investment in Sweet Pea
Investment in Sweet Pea 45,600
Income from Sweet Pea 45,600
To record Popeye’s share of Sweet Pea’s 20X4 Income.
57,000 * 80% = 39,200

Cash 9,600
Investment in Sweet Pea 9,600
To record Popeye’s share of Sweet Pea’s 20X4 Income.
12,000 * 80% = 8,000

Income from Sweet Pea 1,000

Investment in Sweet Pea 1,000
To reverse one-sixth of the deferred gain on equipment sold to Sweet Pea.
1,000 = 6,000 / 6 years left

7) Give the elimination/consolidation entries needed to prepare a consolidation

worksheet for 20X4
Common Stock 60,000
Retained Earnings 135,000
Income from Sweet Pea 46,400
NCI in NI of Sweet Pea 11,600
Dividends Declared 12,000
Investment in Sweet Pea 192,800
NCI in NA of Sweet Pea 48,200
To record the basic consolidation entries.
46,400 = 57,000 * 80% + 1,000 * 80%
11,600 = 57,000 * 20% + 1,000 * 20%
192,800 = (60,000 + 135,000) * 80% + 57,000 * 80% - 12,000 * 80% + 1,000 * 80%
48,200 = (60,000 + 135,000) * 20% + 57,000 * 20% - 12,000 * 20% + 1,000 * 20%

Accumulated Depreciation 69,600

Buildings & Equipment 69,600
To record the accumulated depreciation consolidation entry.
69,600 = 87,000 * 80%

Accumulated Depreciation 1,000

Depreciation Expense 1,000
To record the adjustment to accumulated depreciation as of still on Sweet Pea’s books.
1,000 = 6,000 / 6 years left

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ACC 415_Section 001
Student: Khanh “Kai” Nguyen Professor: Jenny Teruya

Investment in Sweet Pea 4,800

NCI in NA of Sweet Pea 1,200
Buildings & Equipment 14,000
Accumulated Depreciation 20,000
To record the adjustment to equipment as of still on Sweet Pea’s books.

8) Determine the 20X4 end-of-year amounts that would be reported on the

consolidated financial statements for a) Consolidated Net Income, b) NCI-Income, c)
NCI-Assets, and d) PP&E (net).

a) Consolidated Net Income = 98,000 + 45,600 + 57,000 – 45,600 + 1,000 = 156,000

b) NCI – Income = 57,000 * 20% = 11,400

c) NCI – Assets = (60,000 + (135,000 + 57,000 – 12,000)) * 20% = 48,000

d) PP&E (net)
= 586,000 + 164,000 + 6,000 – 69,600 – 356,000 – 99,500 + 69,600 – 20,000 + 1,000
= 281,500

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