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Posted on Jul 27, 2024

3.2 Big Co acquired 80% of the common Stock of Little Co. on 1/1/22 for $200,000. The fair value of the NC Interest on that

3.2

Big Co acquired 80% of the common Stock of Little Co. on 1/1/22 for $200,000. The fair value of the NC Interest on that date was $50,000. 80% Little's book value on that date was $250,000, and all assets and liabilities had fair values equal to book value. In 2022, Little reported earnings of $30,000 and paid dividends of $10,000 In 2023 Little reported earnings of $40,000 and paid dividends of $15,000. The trial balances for 1/1/22, 12/31/22, and 12/31/23 are given below.

Required: 1. Prepare appropriate equity method entries for each year 2. Prepare elimination entries at 1/1/22 and complete the "Consolidation at acquisition" (1/1/22) worksheet using this EXACT FORMAT:

image text in transcribed 3. Prepare elimination entries at12/31/23 and complete the "Consolidation at acquisition" (12/31/23) worksheet using this EXACT FORMAT:

image text in transcribed 4. Prepare elimination entries at12/31/22 and complete the "Consolidation at acquisition" (12/31/22) worksheet using this EXACT FORMAT:

image text in transcribed You HAVE to "work down" the Big and Little columns in the 12/31/22 worksheet to get the ending R/E values to plug into the 12/31/23 worksheet!

December 31, 2022 December 31, 2023 \begin{tabular}{|l|r|r|l|l|l|} \hline & Big & Little & dr & Cr & Consol. \\ \hline Sales & 300000 & 280000 & & & \\ \hline Expenses & 250000 & 240000 & & & \\ \hline Investment income & 32000 & 0 & & & \\ \hline Net income & 82000 & 40000 & & & \\ \hline Income to NC Interest & & & & & \\ \hline Income to controlling interest & & & & & \\ \hline & & & & & \\ \hline & & & & & \\ \hline Beginning R/E & 82000 & 40000 & & & \\ \hline Add: Income & 20000 & 15000 & & & \\ \hline Less: Dividends & 316000 & 245000 & & & \\ \hline Ending R/E & & & & & \\ \hline & 40000 & 30000 & & & \\ \hline Cash & 45000 & 35000 & & & \\ \hline Receivables & 50000 & 35000 & & & \\ \hline Inventory & 236000 & & 0 & & \\ \hline Investment in Little & 240000 & 230000 & & & \\ \hline PPE, net & 20000 & 10000 & & & \\ \hline Patents & 35000 & 90000 & & & \\ \hline Other assets & & & & & \\ \hline & 160000 & 100000 & & \\ \hline Accounts payable & 150000 & 50000 & & & \\ \hline Bonds payable & 316000 & 245000 & & & \\ \hline Common Stock & & & & \\ \hline Retained earnings & & & & \\ \hline NC Interest & & & & \\ \hline \end{tabular} January 1,2022 \begin{tabular}{|l|r|r|l|l|l|} \hline & Big & Little & dr & cr & Consol. \\ \hline Cash & 30000 & 20000 & & & \\ \hline Receivables & 35000 & 30000 & & & \\ \hline Inventory & 45000 & 50000 & & & \\ \hline Investment in Little & 200000 & 0 & & & \\ \hline PPE, net & 260000 & 250000 & & & \\ \hline Patents & 30000 & 20000 & & & \\ \hline Other assets & 10000 & 80000 & & & \\ \hline & & & & & \\ \hline Accounts payable & 60000 & 50000 & & & \\ \hline Bonds payable & 200000 & 150000 & & & \\ \hline Common Stock & 150000 & 50000 & & & \\ \hline Retained earnings & 200000 & 200000 & & & \\ \hline NC Interest & & & & & \\ \hline \end{tabular} December 31, 2022 December 31, 2023 \begin{tabular}{|l|r|r|l|l|l|} \hline & Big & Little & dr & Cr & Consol. \\ \hline Sales & 300000 & 280000 & & & \\ \hline Expenses & 250000 & 240000 & & & \\ \hline Investment income & 32000 & 0 & & & \\ \hline Net income & 82000 & 40000 & & & \\ \hline Income to NC Interest & & & & & \\ \hline Income to controlling interest & & & & & \\ \hline & & & & & \\ \hline & & & & & \\ \hline Beginning R/E & 82000 & 40000 & & & \\ \hline Add: Income & 20000 & 15000 & & & \\ \hline Less: Dividends & 316000 & 245000 & & & \\ \hline Ending R/E & & & & & \\ \hline & 40000 & 30000 & & & \\ \hline Cash & 45000 & 35000 & & & \\ \hline Receivables & 50000 & 35000 & & & \\ \hline Inventory & 236000 & & 0 & & \\ \hline Investment in Little & 240000 & 230000 & & & \\ \hline PPE, net & 20000 & 10000 & & & \\ \hline Patents & 35000 & 90000 & & & \\ \hline Other assets & & & & & \\ \hline & 160000 & 100000 & & \\ \hline Accounts payable & 150000 & 50000 & & & \\ \hline Bonds payable & 316000 & 245000 & & & \\ \hline Common Stock & & & & \\ \hline Retained earnings & & & & \\ \hline NC Interest & & & & \\ \hline \end{tabular} January 1,2022 \begin{tabular}{|l|r|r|l|l|l|} \hline & Big & Little & dr & cr & Consol. \\ \hline Cash & 30000 & 20000 & & & \\ \hline Receivables & 35000 & 30000 & & & \\ \hline Inventory & 45000 & 50000 & & & \\ \hline Investment in Little & 200000 & 0 & & & \\ \hline PPE, net & 260000 & 250000 & & & \\ \hline Patents & 30000 & 20000 & & & \\ \hline Other assets & 10000 & 80000 & & & \\ \hline & & & & & \\ \hline Accounts payable & 60000 & 50000 & & & \\ \hline Bonds payable & 200000 & 150000 & & & \\ \hline Common Stock & 150000 & 50000 & & & \\ \hline Retained earnings & 200000 & 200000 & & & \\ \hline NC Interest & & & & & \\ \hline \end{tabular}