Workpaper Entries and Consolidated Net Income for Year of Acquisition On January 1, 2004, Pump Company acquired all the outstanding common stock of Sound Company for $556,000 in cash. Financial data relating to Sound Company on January 1, 2004, are presented here: LO2 Balance Sheet Book Value Fair Value Cash $ 104,550 $ 104,550 Receivables 123,000 112,310 Inventories 220,000 268,000 Buildings 331,000 375,000 Accumulated Depreciation — Buildings (264,800) (300,000)
Equipment 145,000 130,000 Accumulated Depreciation — Equipment (108,750) (97,500)
Land 150,000 420,000 Total Assets $ 700,000 $1,012,360 Book Value Fair Value Current Liabilities $ 106,000 $ 106,000 Bonds Payable, 8% due 1/1/2022 Interest Payable on 6/30 and 12/31 300,000 Common Stock 200,000 Premium on Common Stock 80,000 Retained Earnings 14,000 Total Liabilities and Equities $700,000 Sound Company would expect to pay 10% interest to borrow long-term funds on the date of acquisition. During 2004, Sound Company wrote its receivables down by $10,690 and recorded a corresponding loss. Sound Company accounts for its inventories at lower of FIFO cost or market. Its buildings and equipment had a remaining estimated useful life on January 1, 2004, of 10 years and 2'% years, respectively. Sound Company reported net income of $80,000 and declared no dividends in 2004.
Required: , A. Prepare in general journal form the December 31, 2004, workpaper entries necessary to eliminate the investment account and to allocate and depreciate the difference between cost and book value.
B. Assume that Pump Company’s net income from independent operations in 2004 amounts to $500,000. Calculate the controlling interest in combined net income for 2004.