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Chapter 4--draft

E4.13 Consolidation Using Cost Method Assume the same information as in E4.6 (found
immediately below), except Adams uses the cost method to account for its investment in
Baker.
Required: Prepare the working paper eliminating entries necessary to consolidate the financial
statement of Adams and Baker at December 31, 2013.
E4.6 Consolidation after Several Years Seven years ago, on December 31, 2006, Adams
Corporation acquired all of the stock of Baker Company. The fair value of Adams shares used
in the exchange was $ 7,500,000. At the time of acquisition, the book value of Bakers
stockholders equity was $5,000,000, and the fair value of Bakers building (25-year life)
exceeded its book value by $1,000,000. From the date of acquisition to December 31, 2012,
Baker had cumulative net income of $1,300,000 and paid total dividend of $400,000. For 2013,
Baker reported net income of $300,000 and paid cash dividends of $100,000. Adams used the
complete equity method to account for its investment in Baker. There is no goodwill
impairment loss for the period 2007 through 2012, but there is impairment loss of $100,000 in
2013.
Required: Prepare the working paper eliminating entries necessary to consolidate the financial
statements of Adams and Baker at December 31, 2013.

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