Bell Company purchased 60 percent ownership of Troll Corporation on January 1, 20X1, for \(\$ 83,000\). On that date, Troll reported common stock outstanding of \(\$ 100,000\) and retained earnings of \(\$ 20,000\). The purchase differential is assigned to land to be used as a future building site. Bell uses the equity method in accounting for its ownership of Troll. On December 31, 20X2, the trial balances of the two companies are as follows:

Troll sold inventory costing \(\$ 25,500\) to Bell for \(\$ 42,500\) in \(20 \mathrm{X} 1\). Bell resold 80 percent of the purchase in 20X1 and the remainder in 20X2. Troll sold inventory costing \(\$ 21,000\) to Bell in 20X2 for \(\$ 35,000\), and Bell resold 70 percent prior to December 31, 20X2. In addition, Bell sold inventory costing \(\$ 14,000\) to Troll for \(\$ 28,000\) in \(20 \mathrm{X} 2\), and Troll resold all but \(\$ 13,000\) of its purchase prior to December 31, 20X2.
\section*{Required}

a. Record the journal entry or entries for \(20 \times 2\) on the books of Bell Company related to its investment in Troll Corporation, using the basic equity method.

b. Prepare the elimination entries needed to complete a consolidated workpaper for \(20 \mathrm{X} 2\).

c. Prepare a three-part consolidation workpaper for 20X2.

Transcribed Image Text:

Bell Company Troll Corporation Item Debit Credit Debit Credit Cash and Accounts Receivable $ 69,200 $ 51,200 Inventory 60,000 55.000 Land 40,000 30,000 Buildings and Equipment 520.000 350,000 Investment in Troll Corporation Stock 113.000 Cost of Goods Sold 99.800 61,000 Depreciation Expense 25,000 15,000 Interest Expense Dividends Declared Accumulated Depreciation Accounts Payable Bonds Payable Bond Premium 6,000 14,000 40.000 10.000 $175.000 $ 75,000 68.800 41.200 80,000 200,000 1.200 Common Stock 200.000 100.000 Retained Earnings 230.000 50.000 Sales 200,000 120,000 Income from Subsidiary 18.000 $973,000 $973.000 $586,200 $586.200