Preparing the investment related entries


Response to the following problem:

On January 1, 2010, People Company acquired an 80% interest in Soft Company for $1,000,000. On that date Soft Company had retained earnings of $200,000 and common stock of $800,000. The book values of assets and liabilities were equal to fair values except for the following: Book Value Fair Value Equipment (net) 320,000 520,000 The equipment had an estimated remaining useful life of 5 years. Soft Company reported net income of $30,000 in 2010 and $40,000 in 2011. Dividends were declared and paid in the amount of $10,000 in 2010 and $15,000 in 2011. People Company uses the cost method to record its investment in Soft Company.

Required: For 2010:

Prepare investment related entries on People Company's books for 2010.

Prepare the CAD. Prepare, in general journal form, the workpaper eliminating entries necessary in the consolidated statements workpaper for the year ending December 31, 2010. For 2011:

Prepare investment related entries on People Company's books for 2011.

Prepare, in general journal form, the workpaper eliminating entries necessary in the consolidated statements workpaper for the year ending December 31, 2011.

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Financial Accounting: Preparing the investment related entries
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