Equity in Net Income and Eliminating Entries, Intercompany Asset Transfers and Services

On January 1, 2018, Pohang Company acquired all of Suro Corporations 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 years 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. Suros beginning inventory included $10,000 of merchandise purchased from Pohang. Suros 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 years, straight-line.

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.

I just need I-6 E and R please show work

20.000 Sell 0 A VC Microbi exo Support 99 Micro Office CT Micro IEG b. Prepare the working paper eliminations to consolidate the accounts of Pohang and Suro at December 31, 2019. Ref. Description Debit Credit (0) Equity in net income of Suro 40.000 Dividends - Suro 07 18,000 Investment in Suro 0 22,000 To eliminate the current year equity method entries made by Pohang. (1-1) Retained earnings, beg. - Suro 5,000 0 0 Land 0 5,000 To eliminate the unconfirmed gain from transfer of land. (1-2) Sales 300,000 0 Cost of goods sold 07 300,000 To eliminate intercompany merchandise sales. (1-3) Investment in Suro 2,000 0 Cost of goods sold 0 2,000 To eliminate intercompany profit on downstream sales from beg. inventory. (1-4) Cost of goods sold 3,000 O Inventory 0 3,000 To eliminate intercompany profit on upstream sales from end. inventory, (1-5) Gain on sale of machinery 5,000 O Machinery, net O 5,000 To eliminate the gain on the intercompany sale of machinery, (1-6) Machinery, net 5,000 X 0 Depreciation expense 0 5,000 X To eliminate excess depreciation on the machinery acquired from Suro. 20,000 0 (1-7) Service revenue Service expense 0 20,000 To eliminate intercompany revenue and expense. 1,000 0 (1-8) Accounts payable Accounts receivable 0 1.000 To eliminate intercompany receivables and payables. 30,200 X 0 (E) Shareholders' equity - Suro O Investment in Suro 30,200 X To eliminate the remaining beginning shareholders' equity of Suro. 300,000 x 07 (R) Goodwill 0 300,000 x Investment in Suro To establish goodwill as of the beg. of the year. 150 Mere h. Office Ah P Micros elite WE W db IA Micro Offi. T Micro Team