Answered step-by-stepHow do I analyze the investment in QSI and what are the adjustments...
How do I analyze the investment in QSI and what are the adjustments that need to be done to SBW Financial Statements for the year ending Dec 31, 2022. I need to switch from cost to equity and do an equity pick-up. then adjust for what it is supposed to be from previous and current year.
SBW had been accounting for its investment in QSI using the cost method and it needs to be switched to the equity method.
A 25% equity interest of QSI was purchased on Jan 1, 2020.
ON Jan 1, 2020 QSI issued 80,000 common shares to SBW for $1,300,000. Prior to the issue QSI had 320,000 common shares outstanding giving SBW a 25% interest.
Purchase documents from Jan 1, 2021 show QSI's shareholders' equity accounts were;
Share Capital $500,000
Retained Earningss $1,989,000
All assets and liabilities were equal to book values except for inventory which had a fair value $260,000 greater than book value and an intangible asset relating (a process) with a fair value of $1,500,000 and a book value of $650,000- the intangible asset has a useful life of 20 years,
Inventory is purchased by SBW from QSI every year. A summary of purchases and amounts in ending inventory for the year is;
2021-purchases $7,000,000
2021-profit in EI $216,000
2022- purchases $7,380,000
2022- profit in EI $41,000
QSI
Stmt of RE
Ending Dec 31, 2022
Opening RE $3,688,170
Net Inc 657,170
Dividends -271,000
Ending Retained Earnings $4,074,835
QSI
Stmt of RE
Ending Dec 31, 2021
Opening RE $2,901,400
Net Inc 965,620
Dividends -178,850
Ending Retained Earnings $4,074,835
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