part 1: On 1/1/2014 Big and Small had the following balance sheets:
Big Small
Cash 2,000,000 $500,000
Inventory $1,000,000 $300,000
Land $1,000,000 $500,000
Equipment $2,000,000 $800,000
a/d equip $400,000 $300,000
total assets $5,600,000 $1,800,000
a/p $1,000,000 $900,000
c/s $3,000,000 $800,000
r/e $1,600,000 $100,000
On 1/2/14 Big purchased all of the stock of Small for $1,100,000. On this date, Small's land had a fair market value of $700,000 and Small's equipment had a fair market value of $100,000.
Required: a) make the journal entry Big makes when it buys the stock of Small from Small's stockholders.
b) make the journal entry Small makes when Big buys the stock of Small from Small's stockholders
c) Make the worksheet entry needed 1/2/2014 for the consolidated balance sheet
d) show the 1/2/14 consolidated balance sheet of Big.
Part 2: (a continuation of part 1) In 2014 Big and Small reported the following income statements
Big Small
Sales 1,000,000 300,000
Cogs 500,000 100,000
Gross profit 500,000 200,000
Depreciation 160000 50000
Investment income A 0
Net income B 150,000
Note: the depreciation for both companies is attributable to the equipment which has a 10 year remaining life, and is being depreciated using straight line depreciation with no salvage.
The 12/31/14 balance sheets of Big and Small are as follows:
Big Small
Cash 1,100,000 $650,000
Inventory $1,000,000 $300,000
Land $1,000,000 $500,000
Equipment $2,000,000 $800,000
a/d equip $560,000 $350,000
invest in Sm C 0
total assets D $1,900,000
a/p $1,000,000 $900,000
c/s $3,000,000 $800,000
r/e E $200,000
Required: a) prepare the journal entries unconsolidated Big made in 2014 due to its investment in Small. Let me know which method you are using for the investment (equity, partial equity or initial value)
b) determine the values for:
A)
B)
C)
D)
E)
c) make the necessary work sheet entries needed for the consolidation
d) prepare the consolidated income statement for 2014
e) prepare the consolidated balance sheet on 12/31/14