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Presentation/PPT
27/08/2022
(50 points) Jones Company acquired an 80% interest in
Smith Company at the beginning of Year 1 for $161,000.
The book value of the stock purchased was $140,000. In
negotiating the purchase price, it was agreed that the
market value was justified in exceeding the book value
because of the strong foothold in the market established
by a newly launched product, Instant Coffee. Competitive
brands are now coming on the market, however, and management
believes that the initial advantage gained by
Smith’s new product will be dissipated in the next five
years. Any goodwill should be amortized over this period.
During Year 1, Jones sold to Smith merchandise for
$85,000 that cost $10,000, and 20% of these goods are still
in Smith’s ending inventory.
Jones uses the cost method to account for its investment
in Smith. Minority interest will reflect the legal method.
Required:
a. Complete the accompanying work sheet, supplying
notes to explain the entries.
b. Prepare a statement of consolidated net income showing
minority interest.
A ccount Title
Inventory
Investment in Smith Company
Dividend Receivable From
Smith Company
Other Assets
Cost of Goods Sold
Operating Expenses
Income Taxes
Dividends Paid-
Jones Company
Dividends Paid-
Smith Company
Liabilities
Dividends Payable
Sales
Dividend Income
Capital Stock-
Jones Company
Capital Stock-
Smith Company
Retained Earnings-
Jones Company
Retained Earnings-
Smith Company
Total
JONES COMPANY
Consolidating Work Sheet
Year 1 End
Jones Smith Eliminating Entries
Company Company Debits 1 Credits
$100,000 $ 50,000
161,000
2,400
242,600 150,000
313,400 121,600
135,200 30,200
18,400 7,200
15,000
6,000
96,500 41,000
7,500 3,000
(495,200) (181,000)
(4,800)
(300,000)
(100,000)
(84,000)
{40,000}
0 0
2. (10 points) Explain a) the nature of minority interest and
b) its proper presentation on a consolidated balance sheet.
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