Comprehensive Problem: Wholly Owned Subsidiary Thessaly Corporation acquired 100 percent ownership of Ionian Company on January 1, 20X9, for $600,000. The adjusted trial balance for the two companies on December 31, 20x9, are as follows: Thessaly Corporation Ionian Company Debit Credit Debit Credit Cash $335,000 $150,000 Accounts Receivables 85,000 40,000 Inventory 200,000 100,000 Investment in Ionian 657,000 Land 155,000 120,000 Buildings & Equipment (net) 140,000 260,000 COGS 425,000 100,000 Depreciation Expense 60,000 30,000 Other Expenses 300,000 100,000 Dividends Declared 30,000 30,000 Current Payables 200,000 25,000 Bonds Payable 300,000 70,000 Common Stock 250,000 150,000 Retained Earnings 600,000 200,000 Additional Paid in Capital 150,000 130,000 Sales 800,000 345,000 Income from Sub 87,000 $2,387,000 $2,387,000 $930,000 $930,000 Additional Information: 1. The fair values of all of Ionian's assets and liabilities were equal to their book values except for the following: Fair Value Inventory $120,000 Land $150,000 Buildings & Equipment, net $300,000 Bonds Payable $50,000 2. Assume that on the date of acquisition Ionian's buildings & equipment had an estimated remaining life of 10 years and that the bonds payable would mature in 5 years. Also assume that all inventory was sold in 20X9. 3. Detailed analysis of receivables and payables showed that Ionian owed Thessaly $10,000 on December 31, 20X9. Required: Give all journal entries recorded by Thessaly with regard to its investment in Ionian during 20X9. b. Give all consolidating entries needed to prepare a full set of consolidated financial statements for 20X9. c. Prepare a three-part consolidation worksheet as of December 31, 20X9. a. Book Value Fair Value Differential Life Amortization a. Journal entries recorded by Thessaly Corporation: (1) Record acquisition of Ionian Company. (2) Record income from Ionian Company. (3) Record dividends from Ionian Company. (4) Amortize differential Investment in Sub Income from Sub Common Stock Retained Earnings APIC b. Eliminating entries: E(1) Eliminate income from subsidiary. E(2) Eliminate beginning investment balance: E(3) Assign beginning differential. E(4) Amortize differential. E(5) Eliminate intercorporate receivable/payable. Thessaly Corp. Ionian Co. DR CR Consolidated Income Statement Sales Less: COGS Less: Depreciation Expense Less: Other Expenses Less: Interest Expense Income from Sub Net Income 800,000 (425,000) (60,000) (300,000) 345,000 (100,000) (30,000) (100,000) 87,000 $102,000 $115,000 Statement of Retained Earnings Beginning Balance Net Income 600,000 200,000 (30,000) (30,000) Less: Dividends Declared Ending Balance Balance Sheet Cash Accounts Receivable Inventory Land Buildings & Equipment, net 335,000 85,000 200,000 155,000 140,000 140,000 40,000 100,000 120,000 260,000 Investment in Ionian Co. 657,000 Total Assets Current Payables Bonds Payable 200,000 300,000 25,000 70,000 250,000 150,000 Common Stock Retained Earnings Additional Paid in Capital Total Liabilities and Stockholder's Equity 150,000 130,000
