Equity Method and Eliminating Entries Three Years After Acquisition

Puffin Industries acquired all of Sunset Coast Digital's stock on January $1,2014,$ for $$1,750,000$ $$1,050,000$ in excess of book value. At that time, Sunset Coast's inventory $($LIFO$)$ was overvalued by $$250,000$ and its plant assets $(10-$year life$)$ were overvalued by $$500,000.$ The remaining excess of cost over book value is attributed to undervalued identifiable intangible assets being amortized over $20$ years. Sunset Coast depreciates plant assets and amortizes intangibles by the straight$-$line method. During $2014$ and $2015,$ Sunset Coast reported total net income of $$325,000$ and paid out $50$ percent in dividends. Puffin carries its investment in Sunset Coast using the complete equity method. Sunset Coast's inventory increased each year since it was acquired by Puffin, and Sunset Coast's reported net income for $2016$ was $$100,000,$ and dividends totaled $50$ percent of reported income.

a$.$ Compute Puffin's $2016$ equity in net income of Sunset Coast.

$Answer $1$

$0$

b$.$ Compute the balance in the Investment in Sunset Coast account at December $31,2016,$ after all equity method entries have been booked.

$Answer $2$

$0$

c$.$ Prepare the working paper eliminating entries needed in consolidation at December $31,2016.$

Consolidation Journal

Ref. Description Debit Credit

$($C$)$ Answer $3$

Answer $4$

$0$

Answer $5$

$0$

Answer $6$

Answer $7$

$0$

Answer $8$

$0$

Investment in Sunset Coast Answer $9$

$0$

Answer $10$

$0$

$($E$)$ Answer $11$

Answer $12$

$0$

Answer $13$

$0$

Answer $14$

Answer $15$

$0$

Answer $16$

$0$

$($R$)$ Answer $17$

Answer $18$

$0$

Answer $19$

$0$

Inventory Answer $20$

$0$

Answer $21$

$0$

Plant assets, net Answer $22$

$0$

Answer $23$

$0$

Answer $24$

Answer $25$

$0$

Answer $26$

$0$

$($O$)$ Answer $27$

Answer $28$

$0$

Answer $29$

$0$

Amortization expense Answer $30$

$0$

Answer $31$

$0$

Depreciation expense Answer $32$

$0$

Answer $33$

$0$

Answer $34$

Answer $35$

$0$

Answer $36$

$0$

d$.$ If Puffin reports $$300,000$ net income from its own operations in $2016,$ what is consolidated net income for $2016?$

$Answer $37$

$0$