On January 1, 2018, Porter Company purchased an 80% interest in the capital stock of Salem Company

Question:

On January 1, 2018, Porter Company purchased an 80% interest in the capital stock of Salem Company for $850,000. At that time, Salem Company had capital stock of $550,000 and retained earnings of $80,000. Porter Company uses the complete equity method to record its investment in Salem Company. Differences between the fair value and the book value of the identifiable assets of Salem Company were as follows:

? ? ? ? ? ? ?Fair Value in Excess of Book ValueEquipment.........................................$130,000Land........................................................65,000Inventory................................................40,000

The book values of all other assets and liabilities of Salem Company were equal to their fair values on January 1, 2018. The equipment had a remaining life of five years on January 1, 2018. The inventory was sold in 2018.

Salem Company?s net income and dividends declared in 2018 and 2019 were as follows:

Year 2018 Net Income of $100,000; Dividends Declared of $25,000

Year 2019 Net Income of $110,000; Dividends Declared of $35,000

Required:

A. Present the eliminating/adjusting entries needed on the consolidated worksheet for the year ended December 31, 2018. (It is not necessary to prepare the worksheet.)

B. Present the eliminating/adjusting entries needed on the consolidated worksheet for the year ended December 31, 2019. (It is not necessary to prepare the worksheet.) Use the following financial data for 2020 for requirements C through G.

image

C. Although no goodwill impairment was reflected at the end of 2018 or 2019, the goodwill impairment test conducted at December 31, 2020 revealed implied goodwill from Salem to be only $150,000. The impairment was reflected in the books of the parent. Prepare a t-account calculation of the controlling and noncontrolling interests in consolidated income for the year ended December 31, 2020.

D. Prepare a consolidated financial statements workpaper for the year ended December 31, 2020.

E. Prepare a consolidated statement of financial position and a consolidated income statement for the year ended December 31, 2020.

F. Describe the effect on the consolidated balances if Salem Company uses the LIFO cost flow assumption in pricing its inventory and there has been no decrease in ending inventory quantities since 2018.

G. Prepare an analytical calculation of consolidated retained earnings for the year ended December 31, 2020.

Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...
Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula                Ending Inventory Formula =...
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Consolidated Income Statement
When talking about the group financial statements the consolidated financial statements include Consolidated Income Statement that a parent must prepare among other sets of consolidated financial statements. Consolidated Income statement that is...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Advanced Accounting

ISBN: 978-1119373209

7th edition

Authors: Debra C. Jeter, Paul K. Chaney

Question Posted: