Workpaper Entries and Consolidated Net Income, Complete Equity Method Perke Corporation purchased 80% of the stock of Superstition Company for $1,970,000 on January 1, 2005. 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 2005; the remainder was sold in 2006. 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. LO2 2005 2006 Net Income $ 750,000 $ 900,000 Dividends Declared 150,000 225,000 Required:
A. In general journal form, prepare the entries on Perke Company’s books to account for its investment in Superstition Company for 2005 and 2006.
B. Prepare the eliminating entries necessary for the consolidated statements workpapers in 2005 and 2006.
C. Assuming Perke Corporation’s net income for 2005 was $1,000,000, calculate the controlling interest in combined net income for 2005.