Question
Hi, need help with a homework problem!! Thanks!! In January 1, 2019, Power Company acquired a 70% interest in Saw Company for a purchase price
Hi, need help with a homework problem!! Thanks!!
In January 1, 2019, Power Company acquired a 70% interest in Saw Company for a purchase price that was $500,000 over the book value of Saws Stockholders Equity on the acquisition date. Power uses the equity method to account for its investment in Saw. The parent assigned the acquisition-date AAP as follows
AAP items Initial Fair Value Useful life (years)
Patent 350,000 10
Goodwill 150,000 Indefinite
500,000
Saw sells inventory to Power (upstream) which includes that inventory in products that it (Power), ultimately, sells to customers outside of the controlled group. You have compiled the following data as of 2024 and 2025:
2024 2025
Transfer price for inventory sale $305,500 $500,000
Costs of Goods Sold -$259,675 -$440,000
Gross Profit $45,825 $60,000
% inventory remaining 50% 40%
Gross profit deferred $22,913 $24,000
EOY Receivable/Payable $42,000 $18,000
The inventory not remaining at the end of the year has been sold outside of the controlled group.
Power and Saw report the following financial statements at December 31, 2025
Income statement
Power Saw
Sales $4,500,000 $750,000
Costs of Goods Sold -3,825,000 -660,000
Gross Profit 675,000 90,000
Income (loss) from sub 13,939
Operating expenses -323,000 -34,000
Net income 365,939 56,000
Statement of Retained Earnings
BOY Retained Earnings $4,465,000 $440,000
Net income 365,939 56,000
Dividends -105,400 -10,000
EOY Retained Earnings 4,725,539 486,000
| Balance Sheet | ||
|
| Power | Saw |
| Assets: |
|
|
| Cash | $420,000 | $425,000 |
| Accounts receivable | 304,000 | 545,000 |
| Inventory | 654,000 | 425,000 |
| Equity Investment | 782,600 |
|
| PPE, net | 6,723,539 | 420,000 |
|
| $8,884,139 | $1,815,000 |
|
|
|
|
| Liabilities and Stockholders Equity: |
|
|
| Current Liabilities | $340,000 | $175,000 |
| Long-term Liabilities | 1,750,000 | 753,000 |
| Common Stock | 853,600 | 92,100 |
| APIC | 1,215,000 | 308,900 |
| Retained Earnings | 4,725,539 | 486,000 |
|
| $8,884,139 | $1,815,000 |
|
|
|
|
QUESTIONS TO ANSWER!!!!!!!!!
1. Compute the EOY noncontrolling interest equity balance.
2. Prepare the consolidation entries
3. Prepare the consolidation spreadsheet as of December 31, 2025:
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