Lance Corporation purchased 75 percent of Avery Companys common stock at underlying book value on January 1,

Lance Corporation purchased 75 percent of Avery Company’s common stock at underlying book value on January 1, 20X3. At that date, the fair value of the noncontrolling interest was equal to 25 percent of Avery’s book value. Trial balances for Lance and Avery on December 31, 20X7, are as follows:

During 20X7, Lance resold inventory purchased from Avery in 20X6. It had cost Avery $44,000 to produce the inventory, and Lance had purchased it for $59,000. In 20X7, Lance had purchased inventory for $40,000 and sold it to Avery for $60,000. At December 31, 20X7, Avery continued to hold $27,000 of the inventory.
Avery had issued $200,000 of 8 percent, 10-year bonds on January 1, 20X4, at 104. Lance had purchased $80,000 of the bonds from one of the original owners for $78,400 on December 31, 20X5. Both companies use straight-line write-off of premiums and discounts. Interest is paid annually on December 31. Assume Lance uses the fully adjusted equity method.

Required
a. What amount of cost of goods sold will be reported in the 20X7 consolidated income statement?
b. What inventory balance will be reported in the December 31, 20X7, consolidated balance sheet?
c. Prepare the journal entry to record interest expense for Avery for 20X7.
d. Prepare the journal entry to record interest income for Lance for 20X7.
e. What amount will be assigned to the noncontrolling interest in the consolidated balance sheet prepared at December 31, 20X7?
f. Prepare all elimination entries needed at December 31, 20X7, to complete a three-part consolidation worksheet.
g. Prepare a consolidation worksheet for 20X7 in goodform.

Transcribed Image Text:

20X7 Trial Balance Data Lance Corporation Debit Avery Company Debit Item Credit Credit Cash Accounts Receivable Other Receivables Inventory Land Buildings & Equipment Investment in Avery Company: S 37,900 $ 48,800 110,000 30,000 167,000 90,000 500,000 105,000 15,000 120,000 40,000 250,000 78,800 176,340 620,000 45,000 35,000 50,000 Bonds Stock Cost of Goods Sold Depreciation Expense Interest & Other Expenses Dividends Declared 240,000 15,000 22,000 24,000 Accumulated Depreciation Accounts Payable Other Payables Bonds Payable Bond Premium S 155,000 118,000 40,000 250,000 $ 75,000 35,000 20,000 200,000 4,800 50,000 250,000 40,000 283,180 750,000 16,000 I Common Stock Additional Paid-In Capital Retained Earnings Sales Interest & Other Income Income from Avery Co Total 170,000 320,000 5,000 37,86090n $1,940,040 $1,940,040 $879,800 $879,800