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On January 1, 20X1, LGM Company purchased 80% of t...

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Question

On January 1, 20X1, LGM Company purchased 80% of the outstanding common stock of MEL Company for $296,000. On this date, the book value of MEL?s net asset was equal to $370,000. LGM uses the equity method to account for investments. Below is the trial balance for both LGM and MEL as of December 31, 20X1 LGM MEL Cash 191,000 46,000 Accounts Receivable 140,000 60,000 Inventory 190,000 120,000 Investment in MEL 350,400 0 Land 250,000 125,000 Buildings & Equipment 875,000 250,000 Cost of Goods Sold 250,000 155,000 Depreciation Expense 65,000 12,000 Selling & Adm. Expense 280,000 50,000 Dividends Declared 80,000 25,000 Accumulated Depreciation 565,000 36,000 Accounts Payable 77,000 27,000 Bonds Payable 250,000 100,000 Common Stock 625,000 250,000 Retained Earnings 280,000 120,000 Sales 800,000 310,000 Income from MEL 74,400 0 Required: 1. Prepare all necessary journal entries to record the investment in MEL. 2. Prepare the book value calculations. 3. Prepare all necessary elimination entries for the consolidating worksheet of December 31, 20X1. 4. Complete the consolidating worksheet for December 31, 20X1. 5. Prepare the following financial statements: a. Balance Sheet b. Income Statement 6. Determine the amount of total revenue, total expense and net income to be reported as of December 31, 20X1 under the following consolidation alternatives: a. Proprietary theory b. Parent company theory c. Entity theory d. Current accounting practice

 

Paper#6286 | Written in 18-Jul-2015

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