Comprehensive Illustration

(Estimated Time: 60 to 75 Minutes) On January 1, 2014, Father Company acquired an 80 percent interest in Sun Company for $425,000. The acquisition-date fair value of the 20 percent noncontrolling interest's ownership shares was $102,500. Also as of that date, Sun reported total stockholders' equity of $400,000: $100,000 in common stock and $300,000 in retained earnings. In setting the acquisition price, Father appraised four accounts at values different from the balances reported within Sun's financial records.

Problem

Buildings (8-year remaining life)

Undervalued by $20,000Land

Undervalued by $50,000Equipment (5-year remaining life)

Undervalued by $12,500Royalty agreement (20-year remaining life)

Not recorded, valued at $30,000

As of December 31, 2018, the trial balances of these two companies are as follows:

Father CompanySun CompanyDebitsCurrent assets

$ 605,000$ 280,000Investment in Sun Company

425,000-0-Land

200,000300,000Buildings (net)

640,000290,000Equipment (net)

380,000160,000Expenses

550,000190,000Dividends declared

90,000 20,000Total debits

$2,890,000$1,240,000CreditsLiabilities

$ 910,000$ 300,000Common stock

480,000100,000Retained earnings, 1/1/18

704,000480,000Revenues

780,000360,000Dividend income

16,000 -0-Total credits

$2,890,000$1,240,000

Included in these figures is a $20,000 payable that Sun owes to the parent company. No goodwill impairments have occurred since the Sun Company acquisition.

Required

1. Determine consolidated totals for Father Company and Sun Company for the year 2018.
2. Prepare worksheet entries to consolidate the trial balances of Father Company and Sun Company for the year 2018.
3. Assume instead that the acquisition-date fair value of the noncontrolling interest was $104,500. What balances in the December 31, 2018, consolidated statements would change?