Perke Corporation purchased 80% of the stock of Superstition Company for $1,970,000 on January 1, 2020. On this date, the fair value of the assets and liabilities of Superstition Company was equal to their book value except for the inventory and equipment accounts. The inventory had a fair value of $725,000 and a book value of $600,000. Sixty percent of Superstition Company?s inventory was sold in 2020; the remainder was sold in 2021. The equipment had a book value of $900,000 and a fair value of $1,075,000. The remaining useful life of the equipment is seven years.

The balances in Superstition Company?s capital stock and retained earnings accounts on the date of acquisition were $1,200,000 and $600,000, respectively. Perke uses the complete equity method to account for its investment in Superstition. The following financial data are from Superstition Company?s records.

Required:

A. In general journal form, prepare the entries on Perke Company?s books to account for its investment in Superstition Company for 2020 and 2021.

B. Prepare the eliminating entries necessary for the consolidated statements workpapers in 2020 and 2021.

C. Assuming Perke Corporation?s net income for 2020 was $1,000,000, calculate the controlling interest in consolidated net income for 2021.

Transcribed Image Text:

2021 2020 Net income Dividends declared $750,000 150,000 $900,000 225,000