Equity in Net Income and Eliminating Entries, Intercompany Asset Transfers and Services On January 1, 2018, Pohang Company acquired all of Suro Corporation's voting common stock for $1,500,000. The $1,200,000 excess of acquisition cost over book value of Suro was attributed entirely to goodwill. Suro reported net income of $25,000 and $45,000 in 2018 and 2019, respectively, and paid out 40 percent of each year's earnings in dividends. Pohang reports its investment using the complete equity method. There is no goodwill impairment in 2018 or 2019. Information on intercompany transactions follows: 1. On March 5, 2018, Suro sold land to Pohang for $60,000; the land originally cost $55,000. Pohang continues to hold the land. 2. During 2019, Pohang recorded intercompany merchandise sales of $300,000 to Suro, reflecting a markup of 25 percent on cost. Suro's beginning inventory included $10,000 of merchandise purchased from Pohang. Suro's ending inventory included $15,000 of merchandise purchased from Pohang. 3. On January 1, 2019, Suro sold machinery to Pohang for $25,000 and recorded a gain of $5,000. The machinery is being depreciated over its remaining life of five straight-line. years, 4. Pohang billed Suro $20,000 for services during 2019. Costs incurred in supplying these services amounted to $16,000. On December 31, 2019, the unpaid portion of these intercompany services amounted to $1,000. Required a. Prepare a schedule to compute Pohang's equity in net income of Suro for 2019. Use negative signs with answers that reduce the net income amount. Suro's net income $ 45,000 Intercompany profits in Suro's beginning inventory Intercompany profits in Suro's ending inventory Unconfirmed gain on intercompany sale of machinery Equity in net income 2,000 - 3,000 x 4,000 x $ 30,200 x b. Prepare the working paper eliminations to consolidate the accounts of Pohang and Suro at December 31, 2019. Ref. Description (C) Equity in net income of Suro Dividends - Suro Debit Credit 30,200 x 0 0 18,000 0 12,200 x Investment in Suro To eliminate the current year equity method entries made by Pohang. (1-1) Retained earnings, beg. - Suro Land To eliminate the unconfirmed gain from transfer of land. (1-2) Sales Cost of goods sold To eliminate intercompany merchandise sales. (1-3) Investment in Suro Cost of goods sold To eliminate intercompany profit on downstream sales from beg. inventory. (1-4) Cost of goods sold Inventory To eliminate intercompany profit on upstream sales from end. inventory. (1-5) Gain on sale of machinery Machinery, net To eliminate the gain on the intercompany sale of machinery. (1-6) Machinery, net Depreciation expense To eliminate excess depreciation on the machinery acquired from Suro. (1-7) Service revenue < < < < 0 x 0 0 % 0 < * 0 % 0 o o 0 0 % O 0 O x > 0x 0 % 0 0 > x 0 0 O O 0 % 0 0 0 x 5,000 x 0 0 5,000 x 0 % 0 > x 0% 0 5,000 x 0 (1-5) Gain on sale of machinery Machinery, net To eliminate the gain on the intercompany sale of machinery. (1-6) Machinery, net Depreciation expense To eliminate excess depreciation on the machinery acquired from Suro. (1-7) Service revenue Service revenue To eliminate intercompany revenue and expense. (1-8) Accounts payable () (E) (R) Accounts payable To eliminate intercompany receivables and payables. Shareholders' equity - Suro Shareholders' equity - Suro To eliminate the remaining beginning shareholders' equity of Suro. Goodwill Investment in Suro To establish goodwill as of the beg. of the year. 0 % 0 * 0 0 0 0% O O > x 0 0% O O