Haynes and Turner Consolidated Financial Statements (Equity Method)
a) Investment in Turner:
Initial investment: 8,500 shares * $15/share = $127,500
Turner's net income 2017: $145,000 ($275,000 - $130,000)
Turner's net income 2018: $185,650 ($348,750 - $163,100)
Dividends received: $120,000 + $140,000 = $260,000
Investment in Turner on Dec 31, 2018: $127,500 + $145,000 + $185,650 - $260,000 = $298,150
b) Consolidated net income:
Haynes net income 2018: $886,000 - $471,200 = $414,800
Turner net income 2018: $185,650
Haynes' share of Turner's income (100%): $185,650
Consolidated net income: $414,800 + $185,650 = $600,450
c-1) Consolidated equipment:
Haynes equipment: $532,000
Turner equipment: $373,000
Adjustment for undervaluation: $7,250
Amortization for 2 years: 2 years * 1/5 * $7250 = $2,900
Consolidated equipment: $532,000 + $373,000 + $7,250 - $2,900 = $899,350
c-2) Not affected:
The consolidated equipment balance is not affected by the investment method used by the parent. It is based on the sum of the individual equipment balances adjusted for any necessary adjustments.
d) Entry for beginning Retained Earnings (Equity method):
Debit:
Investment in Turner: $298,150
Retained Earnings (Haynes): $182,700 (Haynes' beginning retained earnings + net income - dividends)
Credit:
Retained Earnings (Consolidated): $480,850