Assignment 5 is based on Chapter 5. Answer the questions below as indicated. Upload the completed assignment to this link.

1-Meadows Company purchased a 80% interest in Szot Company five years ago with no AAP (i.e., purchased at book value). Each reports the following income statement for the current year:

Income Statement
	Meadows	Szot
Sales	$9,000,000	$750,000
Cost of goods sold	-4,200,000	-260,000
Gross Profit	4,800,000	490,000
Income (loss) from subsidiary	112,000
Operating expenses	-2,500,000	-350,000
Net income	$2,412,000	$140,000

Required:

a. Compute the income (loss) from subsidiary of $112,000 reported by the Meadows Company. b. Prepare the consolidated income statement for the current year.

2-McKinney Company acquires an 60% interest in its Sandstone for a purchase price of $1.000,000. The excess of the purchase price over the book value of the Sandstone's Stockholders' Equity is allocated to a building (in PPE, net) that is worth $212,250 more than its book value, an unrecorded Patent that the parent valued at $125,000, and Goodwill of $348,417, 60% of which is allocated to the parent.

The parent and the Sandstone report the following balance sheets on the acquisition date:

	McKinney	Sandstone			McKinney	Sandstone
Cash	$1,500,000	$300,000		Current Liabilities	$750,000	$300,000
Accounts receivable	1,597,500	240,000		Long-term Liabilities	1,268,222	410,000
Inventory	2,689,550	275,000		Common Stock	235,000	75,000
Equity Investment	1,000,000			APIC	5,472,211	156,000
PPE, net	6,008,510	876,000		Retained Earnings	5,070,127	750,000
	$12,795,560	$1,691,000			$12,795,560	$1,691,000

Required: Prepare the consolidation journal entries on the acquisition date.

3-Assume that, on January 1, 2019, Kuehler Company acquired an 80% interest in Eastwood Company for a purchase price that was $650,000 over the book value of the subsidiary's Stockholders' Equity on the acquisition date. Kuehler uses the equity method to account for its investment in Eastwood. Kuehler assigned the acquisition-date AAP as follows:

AAP Items	Initial Fair Value	Useful Life (years)
PPE	$350,000	10
Patent	100,000	5
Customer List	150,000	5
Goodwill	50,000	Indefinite
	$650,000

80% of if the Goodwill is allocated to the parent. Kuehler and Eastwood report the following financial statements December 31, 2022:

Income Statement
	Kuehler	Eastwood
Sales	$860,000	$750,000
Cost of goods sold	-458,000	-430,000
Gross Profit	402,000	320,000
Income (loss) from subsidiary	56,000
Operating expenses	-158,000	-165,000
Net income	$300,000	$155,000

Statement of Retained Earnings
	Kuehler	Eastwood
BOY Retained Earnings	$878,440	$420,000
Net income	300,000	155,000
Dividends	-175,000	-12,500
Ending Retained Earnings	$1,003,440	$562,500

Balance Sheet
	Kuehler	Eastwood
Assets:
Cash	$55,000	$54,000
Accounts receivable	46,000	24,000
Inventory	95,000	95,112
Equity Investment	932,880
PPE, net	288,060	1,873,188
	$1,416,940	$2,046,300
Liabilities and Stockholders' Equity:
Current Liabilities	$75,000	$400,200
Long-term Liabilities	150,000	790,000
Common Stock	63,500	118,100
APIC	125,000	175,500
Retained Earnings	1,003,440	562,500
	$1,416,940	$2,046,300

Required: a. Compute the EOY noncontrolling interest equity balance. b. Prepare the consolidation journal entries.

4-On January 1, 2020, Wondersome Company acquired a 70% interest in Philmore Company for a purchase price that was $240,000 over the book value of the Philmore's Stockholders' Equity on the acquisition date. Wondersome uses the equity method to account for its investment in Philmore. Wondersome assigned the acquisition-date AAP as follows:

AAP Items	Initial Fair Value	Useful Life (years)
PPE, net	$90,000	20
Patent	150,000	10
	$240,000

Philmore sells inventory to Wondersome (upstream) which includes that inventory in products that it, ultimately, sells to customers outside of the controlled group. You have compiled the following data for the years ending 2022 and 2023:

	2022	2023
Transfer price for inventory sale	$94,500	$70,000
Cost of goods sold	-64,500	-45,000
Gross profit	$30,000	$25,000
% inventory remaining	30%	20%
Gross profit deferred	$9,000	$5,000
EOY Receivable/Payable	$32,000	$29,500

The inventory not remaining at the end of the year has been sold outside of the controlled group.

The parent and the subsidiary report the following financial statements at December 31, 2023:

Income Statement
	Wondersome	Philmore
Sales	$2,400,000	$602,400
Cost of goods sold	-1,580,000	-465,398
Gross Profit	820,000	137,002
Income (loss) from subsidiary	45,851
Operating expenses	-711,200	-56,000
Net income	$154,651	$81,002

Statement of Retained Earnings
	Wondersome	Philmore
BOY Retained Earnings	$3,500,000	$608,000
Net income	154,651	81,002
Dividends	-85,000	-15,000
EOY Retained Earnings	$3,569,651	$674,002

Balance Sheet
	Wondersome	Philmore
Assets:
Cash	$450,000	$84,700
Accounts receivable	425,000	113,200
Inventory	654,000	142,100
Equity Investment	803,251
PPE, net	4,438,400	1,000,002
	$6,770,651	$1,340,002
Liabilities and Stockholders' Equity:
Current Liabilities	$505,900	$99,500
Long-term Liabilities	703,500	250,000
Common Stock	402,000	75,300
APIC	1,589,600	241,200
Retained Earnings	3,569,651	674,002
	$6,770,651	$1,340,002

Required: a. Compute the EOY noncontrolling interest equity balance b. Prepare the consolidation journal entries.

5-On January 1, 2020, Wondersome Company acquired a 70% interest in Philmore Company for a purchase price that was $240,000 over the book value of the Philmore's Stockholders' Equity on the acquisition date. Wondersome uses the cost method to account for its investment in Philmore. On the date of acquisition, Philmore's retained earnings balance was $350,000. Wondersome assigned the acquisition-date AAP as follows:

AAP Items	Initial Fair Value	Useful Life (years)
PPE, net	90,000	20
Patent	150,000	10
	$350,000

Philmore sells inventory to Wondersome (upstream) which includes that inventory in products that it, ultimately, sells to customers outside of the controlled group. You have compiled the following data for the years ending 2022 and 2023:

	2022	2023
Transfer price for inventory sale	$94,500	$70,000
Cost of goods sold	-64,500	-45,000
Gross profit	$30,000	$25,000
% inventory remaining	30%	20%
Gross profit deferred	$9,000	$5,000
EOY Receivable/Payable	$32,000	$29,500

The inventory not remaining at the end of the year has been sold outside of the controlled group.

The parent and the subsidiary report the following financial statements at December 31, 2023:

Income Statement
	Wondersome	Philmore
Sales	$2,400,000	$602,400
Cost of goods sold	-1,580,000	-465,398
Gross Profit	820,000	137,002
Income (loss) from subsidiary	10,500
Operating expenses	-711,200	-56,000
Net income	$119,300	$81,002

Statement of Retained Earnings
	Wondersome	Philmore
BOY Retained Earnings	$3,360,350	$608,000
Net income	119,300	81,002
Dividends	-85,000	-15,000
EOY Retained Earnings	$3,394,650	$674,002

Balance Sheet
	Wondersome	Philmore
Assets:
Cash	$450,000	$84,700
Accounts receivable	425,000	113,200
Inventory	654,000	142,100
Investment in subsidiary	634,550
PPE, net	4,432,100	1,000,002
	$6,595,650	$1,340,002
Liabilities and Stockholders' Equity:
Current Liabilities	$505,900	$99,500
Long-term Liabilities	703,500	250,000
Common Stock	402,000	75,300
APIC	1,589,600	241,200
Retained Earnings	3,394,650	674,002
	$6,595,650	$1,340,002

Required: a. Compute the EOY noncontrolling interest equity balance b. Prepare the consolidation journal entries.