BUS FPX 4063 Assessment 1 Accounting for Equity Investments

BUS FPX 4063 Assessment 1 Accounting for Equity Investments

Student Name

Capella University

BUS-FPX4063 Advanced Financial Accounting Topics and Trends

Prof. Name:

Date

Accounting for Equity Investments

Problem 1: Equity Entries for One Year (Including Conversion to Equity Method)

In the following section, equity transactions and entries are recorded and explained for one fiscal year:

Entry One
To record the second acquisition of Simon stock:

Entry Two
To restate reported figures for 2019 to the equity method for comparability:

Entry Three
To record income for the year:

BUS FPX 4063 Assessment 1 Accounting for Equity Investments

Entry Four
To record collection of dividends from Simon:

Entry Five
To record amortization for 2020:

Problem 2: Preparing a Consolidated Balance Sheet

The consolidated balance sheet incorporates adjustments for fair value allocation and goodwill. The calculation of consideration and adjustments to specific assets and liabilities are as follows:

The consolidated balance sheet for Penn Company and its subsidiary as of December 31, 2018, is presented below:

Problem 3: Consolidated Balances Three Years Post-Acquisition

The following computations address the consolidated balances as of December 31, 2020:

• Depreciation Expense: $1,430,000 (660,000 + 770,000)
• Dividends Paid: $308,000 (264,000 + 44,000)
• Revenues: $3,080,000 (-1,760,000 + -1,320,000)
• Equipment: $3,300,000 (1,980,000 + 1,320,000)
• Buildings: $2,640,000 (1,760,000 + 880,000)
• Goodwill: $484,000

Analysis of Methods

• The consolidation method ensures all subsidiary financial data is reflected in the parent company’s records.
• If other methods (e.g., equity or cost) were applied, they would result in differences in reported figures, but they are not appropriate when the parent owns more than 50%.

BUS FPX 4063 Assessment 1 Accounting for Equity Investments

Retained Earnings Calculations

• Initial Value Method: $2,420,000
• Partial Equity Method: $2,596,000 (2,420,000 + 220,000 – 44,000)
• Equity Method: $2,684,000 (2,420,000 + 220,000 + 44,000)

References

American Psychological Association. (2020). Publication manual of the American Psychological Association (7th ed.). Washington, DC: Author.