Workpaper Entries for Year of Acquisition Pearson Company purchased a 100% interest in Sanders Company and a 90% interest in Taylor Company on Jariuary 2, 2004, for $800,000 and $1,300,000, respectively. The account balances and fair values of the acquired companies on the acquisition date were as follows: LO2 Sanders Taylor Book Value Fair Value Book Value Fair Value Current Assets $ 200,000 $ 200,000 $ 350,000 $ 350,000 Inventory 400,000 400,000 500,000 575,000 Plant and Equipment (net) 300,000 350,000 600,000 600,000 Land 600,000 600,000 550,000 625,000 Total $1,500,000 $2,000,000 Current Liabilities $ 500,000 $ 500,000 $ 300,000 $300,000 Bonds Payable 300,000 300,000 600,000 600,000 Capital Stock 500,000 800,000 Retained Earnings 200,000 300,000 Total $1,500,000 $2,000,000 Sanders Company’s equipment has a remaining useful life of 10 years. Two-thirds of Taylor Company’s inventory was sold in 2004, and the rest was sold in the following year. In 2004, Sanders Company reported net income of $500,000 and declared dividends of $100,000.
Taylor Company’s net income and declared dividends for 2004 were $800,000 and $200,000, respectively.
Required:
A. Prepare in general journal form the entries on the books of Pearson Corporation to account for its investments in 2004.
B. Prepare the elimination entries necessary in the consolidated statements workpaper for the year ended December 31, 2004.