On January 01, 20X1, Zasio Ltd acquired 70% of Levin Ltd. for $306,750. The pre-combination statement of financal position two entities are presented below:
Zasio Ltd.
Statement of Financial Position
as of January 01, 20X1
Assets:
Current assets
368,550.00
Cash
144,450.00
Account receivables
162,000.00
Inventory
675,000.00
Noncurrent assets:
Building
526,500.00
Accumulated depreciation – building (81,000.00)
445,500.00
Equipment
354,375.00
Accumulated depreciation – equipment
(141,750.00)
Total assets
Liabilities and shareholder’s equity:
Current Liability
Account payable
Noncurrent liability
Bank loan
Total Liability
Shareholder’s Equity
Common shares
Reatined Earnings
Total shareholder’s equity
Total Liability
212,625.00
1,333,125.00
241,875.00
190,125.00
432,000.00
360,000.00
541,125.00
901,125.00
1,333,125.00
A few years ago Kim shoes Ltd (shoes) established a new company called Kim’s bags Ltd (bags). Shoes acquired all of the Bag’s
shares in exchange for $250,000 cash.
Shoes provided a short term loan of $70,000 to Bags. Bags has committed to repaying the loan by APR 30th of next year
Shoes sold $95,000 of leather bags for $130,000.By the end of the fiscal year, Bags has used all the leather & sold all the
Bags paid Shoes $40,000 in dividends.
Shoes had net income of $178,200 and Bags had net income of 99,700.
At the beginning of the fiscal year, Shoes had a retained earnings of $2,311,900 and Bags had a balance of $271,100
1 Assume Shoes uses the cost method to record its investment in Bags. What journal entries must be made to convert thi
Provide an explanation for each entry.
2 Calculate the balance of the investment in Bags account at the end of the fiscal year under
i The cost method
ii The equity method
ntries must be made to convert this investment from the cost method to the equity method?
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