Question

Peanut Company acquired 90 percent of Snoopy Company's outstanding common stock for $270,000 on January 1, 20X8, when the book value of Snoopy's net assets was equal to $300,000. Peanut uses the equity method to account for investments. Trial balance data for Peanut and Snoopy as of January 1, 20X8, follow:

Peanut Company Snoopy Company
Assets
Cash $55,000 $20,000
Accounts Receivable 50,000 30,000
Inventory 100,000 60,000
Investment in Snoopy Company 270,000
Land 225,000 100,000
Buildings and Equipment 700,000 100,000
Accumulated Depreciation (400,000) (10,000)
Total Assets $1,000,000 $400,000
Liabilities and Stockholders' Equity
Accounts Payable $75,000 $25,000
Bonds Payable 200,000 75,000
Common Stock 500,000 200,000
Retained Earnings 225,000 100,000
Total Liabilities and Equity $1,000,000 $400,000
Required:
a. Prepare the journal entry on Peanut's books for the acquisition of Snoopy on January 1, 20X8.
b. Prepare a consolidation worksheet on the acquisition date, January 1, 20X8.
c. Prepare a consolidated balance sheet on the acquisition date, January 1, 20X8.

Answer 1

a. Prepare the journal entry on Peanut's books. b. Prepare a consolidation worksheet. c. Prepare a consolidated balance sheet.

Step-by-step explanation:

a. Journal entry for the acquisition of Snoopy Company:

Debit: Investment in Snoopy Company ($270,000)

Credit: Cash ($270,000)

b. Consolidation worksheet on the acquisition date:

Relevant data from Peanut's trial balance:

• Investment in Snoopy Company ($270,000)

Relevant data from Snoopy's trial balance:

• Land ($100,000)
• Buildings and Equipment ($100,000)
• Accumulated Depreciation ($10,000)

c. Consolidated balance sheet on the acquisition date:

Assets:

• Cash ($55,000)
• Accounts Receivable ($50,000)
• Inventory ($100,000)
• Investment in Snoopy Company ($270,000)
• Land ($325,000)
• Buildings and Equipment ($700,000)
• Accumulated Depreciation ($410,000)

Liabilities and Stockholders' Equity:

• Accounts Payable ($75,000)
• Bonds Payable ($200,000)
• Common Stock ($500,000)
• Retained Earnings ($225,000)

Answer 2

Date Description Debit Credit

Jan. 1 Investment in Snoopy 270,000

Cash Account 270,000

To record the 90% investment in Snoopy.

Jan. 1

Cash 20,000

Accounts receivable 30,000

Inventory 60,000

Land 100,000

Building, net 90,000

Goodwill on acquisition 100,000

Investment in Snoopy Company 270,000

Accounts Payable 25,000

Bonds Payable 75,000

Noncontrolling interest 30,000

b. Consolidation Worksheet on January 1, 20X8:

Peanut Snoopy DR CR Consolidated

Company Company

Assets

Cash $55,000 $20,000 $75,000

1. Accounts Receivable 50,000 30,000 80,000 Inventory 100,000 60,000 160,000

Investment in Snoopy 270,000 270,000CR

Land 225,000 100,000 325,000

Buildings and Equipment 700,000 100,000 800,000

Accumulated Depreciation (400,000) (10,000) (410,000)

Goodwill 100,000

Total Assets $1,000,000 $400,000 $1,130,000

Liabilities and Stockholders' Equity

Accounts Payable $75,000 $25,000 100,000

Bonds Payable 200,000 75,000 275,000

Common Stock 500,000 200,000 200,000 500,000

Retained Earnings 225,000 100,000 100,000 225,000

Noncontrolling interest 30,000

Total Liabilities and Equity $1,000,000 $400,000 $1,130,000

c. Consolidated Balance Sheet

Assets

Cash $75,000

1. Accounts Receivable 80,000 Inventory 160,000

Land 325,000

Buildings and Equipment 800,000

Accumulated Depreciation (410,000)

Goodwill 100,000

Total Assets $1,130,000

Liabilities and Stockholders' Equity

Accounts Payable $100,000

Bonds Payable 275,000

Common Stock 500,000

Retained Earnings 225,000

Noncontrolling interest 30,000

Total Liabilities and Equity $1,130,000

Step-by-step explanation:

a) Trial balance data for Peanut and Snoopy as of January 1, 20X8, follow:

Peanut Snoopy

Company Company

Assets

Cash $55,000 $20,000

Accounts Receivable 50,000 30,000

Inventory 100,000 60,000

Investment in Snoopy Company 270,000

Land 225,000 100,000

Buildings and Equipment 700,000 100,000

Accumulated Depreciation (400,000) (10,000)

Total Assets $1,000,000 $400,000

Liabilities and Stockholders' Equity

Accounts Payable $75,000 $25,000

Bonds Payable 200,000 75,000

Common Stock 500,000 200,000

Retained Earnings 225,000 100,000

Total Liabilities and Equity $1,000,000 $400,000