On January 1, 20X1, Fern Corporation paid Morton Advertising $116,200 to acquire 70 percent of Vincent Company's stock. Fern also paid $45,000 to acquire $50,000 par value 8 percent, 10-year bonds directly from Vincent on that date. Interest payments are made on January 1 and July 1. The fair value of the noncontrolling interest at January 1, 20X1, was $49,800, and book value of Vincent's net assets was $110,000. The book values and fair values of Vincent's assets and liabilities were equal except for buildings and equipment, which had a fair value $56,000 greater than book value and a remaining economic life of 14 years at January 1, 20X1.

The trial balances for the two companies as of December 31, 20X3, are as follows:

On July 1, 20X2, Vincent sold land that it had purchased for $17,000 to Fern for $25,000. Fern continues to hold the land at December 31, 20X3. Assume Fern Corporation uses the fully adjusted equity method.

Required
a. Record the journal entries for 20X3 on Fern's books related to its investment in Vincent's stock and bonds.
b. Record the entries for 20X3 on Vincent's books related to its bond issue.
c. Prepare elimination entries needed to complete a consolidation worksheet for 20X3.
d. Prepare a three-part consolidation worksheet for 20X3.

Transcribed Image Text:

Fern Corporation Debit Vincent Company Debit Item Credit Credit Cash & Current Receivables Inventory Land, Buildings, & Equipment (net) Investment in Vincent Bonds Investment in Vincent Stock Discount on Bonds Payable Operating Expenses Interest Expense Dividends Declared 30,300 170,000 320,000 46,500 144,200 46,000 70,000 180,000 198,500 27,000 60,000 7,000 161,000 9,000 10,000 Current Liabilities Bonds Payable Common Stock Retained Earnings Sales Interest Income Income from Vincent Co. 35,000 300,000 100,000 238,800 300,000 4,500 18,200 33,000 100,000 50,000 100,000 200,000 5 $996,500 $996,500 $483,000 $483,000