Pirate Company purchased 60 percent ownership of Ship Corporation on January 1, 20X1, for $82,800. On that date, the noncontrolling interest had a fair value of $55,200 and Ship reported common stock outstanding of $100,000 and retained earnings of $20,000. The full amount of the differential is assigned to land to be used as a future building site. Pirate uses the fully adjusted equity method in accounting for its ownership of Ship. On December 31, 20X2, the trial balances of the two companies are as follows:

Ship sold inventory costing $25,500 to Pirate for $42,500 in 20X1. Pirate resold 80 percent of the purchase in 20X1 and the remainder in 20X2. Ship sold inventory costing $21,000 to Pirate in 20X2 for $35,000, and Pirate resold 70 percent of it prior to December 31, 20X2. In addition, Pirate sold inventory costing $14,000 to Ship for $28,000 in 20X2, and Ship resold all but $13,000 of its purchase prior to December 31, 20X2. Assume both companies use straight-line depreciation and that no property, plant, and equipment has been purchased since the acquisition.

Required

a. Record the journal entry or entries for 20X2 on Pirate’s books related to its investment in Ship Corporation, using the equity method.

b. Prepare the consolidation entries needed to complete a consolidated worksheet for 20X2.

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

Transcribed Image Text:

Item Cash and Accounts Receivable Inventory Land Buildings & Equipment Investment in Ship Corporation Cost of Goods Sold Depreciation Expense Interest Expense Dividends Declared Accumulated Depreciation Accounts Payable Bonds Payable Bond Premium Common Stock Retained Earnings Sales Income from Ship Corporation Pirate Company Debit $ 69,400 60,000 40,000 520,000 103,780 99,800 25,000 6,000 40,000 $963,980 Credit $175,000 68,800 80,000 1,200 200,000 227,960 200,000 11,020 $963,980 Ship Corporation Debit $ 51,200 55,000 30,000 350,000 61,000 15,000 14,000 10,000 $586,200 Credit $ 75,000 41,200 200,000 100,000 50,000 120,000 $586,200