On January 1, 2014, Pump Company acquired all the outstanding common stock of Sound Company for $556,000 in cash. Financial data relating to Sound Company on January 1, 2014, are presented here:

Sound Company would expect to pay 10% interest to borrow long-term funds on the date of acquisition. During 2014, Sound Company wrote its receivables down by $10,690 and recorded a corresponding loss. Sound Company accounts for its inventories at lower of FIFO cost or market. Its buildings and equipment had a remaining estimated useful life on January 1, 2014, of 10 years and 2½ years, respectively. Sound Company reported net income of $80,000 and declared no dividends in 2014.
Required:
A. Prepare in general journal form the December 31, 2014, workpaper entries necessary to eliminate the investment account and to allocate and depreciate the difference between book value and the value implied by the purchase price.
B. Assume that Pump Company's net income from independent operations in 2014 amounts to $500,000. Calculate the controlling interest in consolidated net income for 2014.

Transcribed Image Text:

Balance Sheet Receivables Inventories Buildings Accumulated depreciation-buildings Book Value $ 104,550 123,000 220,000 331,000 Fair Value $ 104,550 112,310 375,000 (300,000) 130,000 (264,800) 145,000 Accumulated depreciation-equipment (108,750) (97,500) 150,000 $700,000 Book Value $106,000 420,000 $1,012,360 Fair Value Current liabilities S 106,000 Bonds payable, 8% due 1/1/2028 Interest payable on 6/30 and 12/31 Common stock Premium on common stock 300,000 200,000 80,000 14,000 $700,000 Total liabilities and equities