5 Consolidation Worksheet in Year Following Intercompany Transfer Prime Company holds 80 percent of Suspect Company's stock, acquired on January 1, 20X2, for $160,000. On the date of acquisition, Suspect reported retained earnings of $50,000 and $100,000 of common stock outstanding, and the fair value of the noncontrolling interest was $40,000. Prime uses the fully adjusted equity method in accounting for its investment in Suspect. Trial balance data for the two companies on December 31, 20X7, are as follows: Prime Company Suspect Company Item Debit Credit Debit Credit Cash and Accounts Receivable $ 151.000 $ 55,000 Inventory 240,000 100,000 Land 100,000 80.000 500,000 150,000 Buildings and Equipment Investment in Suspect Co. 201,600 Other Expenses 20,000 10,000 Dividends Declared 60,000 35,000 Accumulated Depreciation $ 230,000 $ 60,000 Accounts Payable 60.000 25,000 Bonds Payable 200.000 50,000 Common Stock 300.000 100,000 Retained Earnings 379.600 140,000 Sales 250.000 150,000 Income frorosuspect Co. 38,000 Total $ 1,457,600 $ 1,457,600 $ 525,000 $ 525,000 Additional Information 1. At the date of combination, the book values and fair values of Suspect's separately identifiable assets and liabilities were equal. The full amount of the increased value of the entity was attributed to goodwill. At December 31, 20X6, the management of Prime reviewed the amount attributed to goodwill as a result of its purchase of Suspect stock and recognized an impairment loss of $18,000. No further impairment occurred in 20x7. 2. On January 1, 20X5, Suspect sold land for $18,000 that had cost $8,000 to Prime. 3. On January 1, 20X6, Prime sold to Suspect equipment that it had purchased for $75,000 on January 1, 20X1. The equipment has a total 15-year economic life and was sold to Suspect for $70,000. Both companies use straight-line depreciation 4. Intercompany receivables and payables total $4.000 on December 31, 20X7 Required: a. Prepare a reconciliation between the balance in Prime's Investment in Suspect Co. account reported on December 31, 20x7, and Suspect's book value. (4 points) Net book value reported by Suspect Company Common stock outstanding Retained earings balance, January 1, 20x7 Net income for 20x7 Dividends paid in 20x7 Retained earnings balance, December 31, 20X7 Proportion of stock held by Prime Company X 0.80 Minus: Upstream Land Gain Minus: Downstream Equipment Transfer Gain Add: Reversal of deferred gain 20X6 on equipment Add: Reversal of deferred gain 20X7 on equipment Add: Goodwill Balance in investment account b. Please prepare eliminating entries for the following items A (basic elimination) (3 points) B (goodwill (2 points) Balance in investment account b. Please prepare eliminating entries for the following items; A (basic elimination) (3 points) B (goodwill) (2 points) (Land) (2 points) D (Equipment and Accu. Depreciation) (2 points) E (account receivable and payable) (2 points)