Hardtack Bread Company holds 70 percent of the common shares of Custom Pizza Corporation. Trial balances for the two companies on December 31, 20X7, are as follows:

At the beginning of \(20 \times 7\), Hardtack held inventory purchased from Custom Pizza Corporation containing unrealized profits of \(\$ 10,000\). During \(20 \times 7\), Hardtack purchased \(\$ 120,000\) of inventory from Custom Pizza and had goods on hand on December 31, 20X7, containing \(\$ 25,000\) of unrealized intercompany profit. On December 31, 20X7, Hardtack sold equipment to Custom Pizza for \(\$ 65,000\). Hardtack had purchased the equipment for \(\$ 150,000\) and had accumulated depreciation of \(\$ 100,000\) on it at the time of sale. The companies file separate tax returns and are subject to a 40 percent income tax rate on all taxable income. Intercompany dividends are 80 percent exempt from taxation.
\section*{Required}

a. Prepare all eliminating entries needed as of December \(31,20 \times 7\), to prepare consolidated financial statements for Hardtack Bread Company and its subsidiary.

b. Prepare a three-part consolidation workpaper for \(20 \times 7\).

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Hardtack Bread Company Custom Pizza Corporation Cash Item Accounts Receivable Inventory Land Debit $ 35.800 130,000 220.000 Credit Debit $ 56,000 40.000 60,000 Credit 60.000 20,000 Buildings and Equipment 450.000 400,000 Patents 70,000 Investment in Custom Pizza Common Stock 158,200 Cost of Goods Sold 435.000 210,000 Depreciation and Amortization 40,000 20,000 Tax Expense 44,000 24,000 Other Expenses 11,400 10.000 Dividends Declared 20.000 10,000 Accumulated Depreciation $ 150,000 $160,000 Accounts Payable 40,000 30,000 Wages Payable 70,000 20,000 Bonds Payable 200.000 100,000 Sales Deferred Income Taxes Common Stock ($10 par value) Retained Earnings Income from Subsidiary 120,000 40,000 100,000 50,000 374,200 150,000 580,000 300,000 25,200 Dividends Declared 20,000 10.000 Accumulated Depreciation $ 150,000 $160,000 Accounts Payable 40,000 30,000 Wages Payable 70,000 20,000 Bonds Payable 200,000 100,000 Deferred Income Taxes Common Stock ($10 par value) Retained Earnings 120,000 40,000 100,000 50,000 374,200 150,000 Sales Income from Subsidiary 580,000 300,000 25,200 Gain on Sale of Equipment 15,000 Total $1,674,400 $1,674,400 $850,000 $850,000