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Prime Corporation acquired 80 percent of Steak Company's voting shares on January 1, 20X4, for $304,160 in cash and marketable securities. At that date, the noncontrolling interest had a fair value of $76,040 and Steak reported net assets of $310,200. Assume Prime uses the fully adjusted equity method. Trial balances for the two companies on December 31, 20X7, are as follows: Steak Company Debit Credit $ 19,000 79,000 119,000 490,000 Prime Corporation Debit Credit $ 139,300 89,000 179,000 690,000 304,160 425,600 30,000 33,000 59,000 $ 319,000 109,000 390,000 Item Cash Accounts Receivable Inventory Buildings & Equipment Investment in Steak Company Cost of Goods Sold Depreciation Expense Other Expenses Dividends Declared Accumulated Depreciation Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-in Capital Retained Earnings Sales Other Income Income from Steak Company Total 211,000 20,000 27,000 34,000 209,000 $108,000 24, 200 190,000 4,600 109,000 18,000 226,200 280,000 39,000 347,460 518,000 29,400 27,200 $1,949,060 $1,949,060 $999,000 $999,000 Additional Information 1. The full amount of the differential at acquisition was assigned to buildings and equipment with a remaining 10-year economic life. 2. Prime and Steak regularly purchase inventory from each other. During 20X6, Steak Company sold inventory costing $32,500 to Prime Corporation for $50,000, and Prime resold 60 percent of the inventory in 20X6 and 40 percent in 20X7. Also in 20X6, Prime sold inventory costing $20,250 to Steak for $27,000. Steak resold two-thirds of the inventory in 20X6 and one-third in 20X7. 3. During 20X7, Steak sold inventory costing $25,350 to Prime for $39,000, and Prime sold items purchased for $9,750 to Steak for $13,000. Before the end of the year, Prime resold one-third of the inventory it purchased from Steak in 20X7. Steak continues to hold all the units purchased from Prime during 20x7. 4. Steak owes Prime $15,000 on account on December 31, 20X7. 5. Assume that both companies use straight-line depreciation and that no property, plant, and equipment has been purchased since the acquisition. The trial balance data can be converted to reflect use of the cost method by inserting the following amounts in place of those presented for Prime Corporation: Investment in Steak Company Retained Earnings Income from Steak Company Dividend Income $304,160 347,460 0 27,200 Required: a. Prepare the journal entries that would have been recorded on Prime's books during 20X7 under the cost method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet A > Record Prime Corp.'s 80% share of Steak Co.'s 20x7 income. Note: Enter debits before credits. Event General Journal Debit Credit 1 Record entry Clear entry View general journal Consolidation Worksheet Entries Record the dividend consolidation entry. Note: Enter debits before credits. Entry Accounts Debit Credit 2 Record entry Clear entry view consolidation entries Consolidation Worksheet Entries Record the excess value (differential) reclassification entry. Note: Enter debits before credits. Entry Accounts Debit Credit 3 Record entry Clear entry view consolidation entries Consolidation Worksheet Entries Record the amortization of the differential from previous years. Note: Enter debits before credits. Accounts Debit Credit Entry 4 Record entry Clear entry view consolidation entries Consolidation Worksheet Entries Record the amortization of the differential for 20x7. Note: Enter debits before credits. Accounts Debit Credit Entry 5 Record entry Clear entry view consolidation entries Consolidation Worksheet Entries Record the assignment of Steak's undistributed income to NCI. Note: Enter debits before credits. Accounts Debit Credit Entry 6 Record entry Clear entry view consolidation entries Consolidation Worksheet Entries Record the elimination of the intercompany accounts. Note: Enter debits before credits. Accounts Debit Credit Entry 7 Consolidation Worksheet Entries Record the optional accumulated depreciation consolidation entry. Note: Enter debits before credits. Accounts Debit Credit Entry 8 Record entry Clear entry view consolidation entries Consolidation Worksheet Entries Record the reversal of last year's deferral. Note: Enter debits before credits. Accounts Debit Credit Entry 9 Record entry Clear entry view consolidation entries Consolidation Worksheet Entries Record the deferral of this year's unrealized profits on inventory transfers. Note: Enter debits before credits. Accounts Debit Credit Entry 10 c. Prepare the three-port consolidation worksheet as of December 31, 20X7. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries Into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries Int one amount and enter this amount in the credit column of the worksheet.) PRIME CORPORATION & SUBSIDIARY Consolidated Financial Statement Worksheet December 31, 20X7 Consolidation Entries Prime Corp Steak Co. DR CR Consolidated Income statement Sales Other Income Dividend Income Less: COGS Less: Depreciation Expense Less: Other Expenses Consolidated Net Income NCI in Net Income of Steak Company Controlling Interest In Net Income Statement of Retained Earning Beginning Balance Net Income Less: Dividends Declared Ending Balance Balance Sheet Cash Accounts Receivable Inventory Buildings & Equipment Less: Accumulated Depreciation Investment in Steak Company Total Assets Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid in Capital Retained Earnings NCI in NA of Steak Company Total Liabilities & Equity Prime Corporation acquired 80 percent of Steak Company's voting shares on January 1, 20X4, for $304,160 in cash and marketable securities. At that date, the noncontrolling interest had a fair value of $76,040 and Steak reported net assets of $310,200. Assume Prime uses the fully adjusted equity method. Trial balances for the two companies on December 31, 20X7, are as follows: Steak Company Debit Credit $ 19,000 79,000 119,000 490,000 Prime Corporation Debit Credit $ 139,300 89,000 179,000 690,000 304,160 425,600 30,000 33,000 59,000 $ 319,000 109,000 390,000 Item Cash Accounts Receivable Inventory Buildings & Equipment Investment in Steak Company Cost of Goods Sold Depreciation Expense Other Expenses Dividends Declared Accumulated Depreciation Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-in Capital Retained Earnings Sales Other Income Income from Steak Company Total 211,000 20,000 27,000 34,000 209,000 $108,000 24, 200 190,000 4,600 109,000 18,000 226,200 280,000 39,000 347,460 518,000 29,400 27,200 $1,949,060 $1,949,060 $999,000 $999,000 Additional Information 1. The full amount of the differential at acquisition was assigned to buildings and equipment with a remaining 10-year economic life. 2. Prime and Steak regularly purchase inventory from each other. During 20X6, Steak Company sold inventory costing $32,500 to Prime Corporation for $50,000, and Prime resold 60 percent of the inventory in 20X6 and 40 percent in 20X7. Also in 20X6, Prime sold inventory costing $20,250 to Steak for $27,000. Steak resold two-thirds of the inventory in 20X6 and one-third in 20X7. 3. During 20X7, Steak sold inventory costing $25,350 to Prime for $39,000, and Prime sold items purchased for $9,750 to Steak for $13,000. Before the end of the year, Prime resold one-third of the inventory it purchased from Steak in 20X7. Steak continues to hold all the units purchased from Prime during 20x7. 4. Steak owes Prime $15,000 on account on December 31, 20X7. 5. Assume that both companies use straight-line depreciation and that no property, plant, and equipment has been purchased since the acquisition. The trial balance data can be converted to reflect use of the cost method by inserting the following amounts in place of those presented for Prime Corporation: Investment in Steak Company Retained Earnings Income from Steak Company Dividend Income $304,160 347,460 0 27,200 Required: a. Prepare the journal entries that would have been recorded on Prime's books during 20X7 under the cost method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet A > Record Prime Corp.'s 80% share of Steak Co.'s 20x7 income. Note: Enter debits before credits. Event General Journal Debit Credit 1 Record entry Clear entry View general journal Consolidation Worksheet Entries Record the dividend consolidation entry. Note: Enter debits before credits. Entry Accounts Debit Credit 2 Record entry Clear entry view consolidation entries Consolidation Worksheet Entries Record the excess value (differential) reclassification entry. Note: Enter debits before credits. Entry Accounts Debit Credit 3 Record entry Clear entry view consolidation entries Consolidation Worksheet Entries Record the amortization of the differential from previous years. Note: Enter debits before credits. Accounts Debit Credit Entry 4 Record entry Clear entry view consolidation entries Consolidation Worksheet Entries Record the amortization of the differential for 20x7. Note: Enter debits before credits. Accounts Debit Credit Entry 5 Record entry Clear entry view consolidation entries Consolidation Worksheet Entries Record the assignment of Steak's undistributed income to NCI. Note: Enter debits before credits. Accounts Debit Credit Entry 6 Record entry Clear entry view consolidation entries Consolidation Worksheet Entries Record the elimination of the intercompany accounts. Note: Enter debits before credits. Accounts Debit Credit Entry 7 Consolidation Worksheet Entries Record the optional accumulated depreciation consolidation entry. Note: Enter debits before credits. Accounts Debit Credit Entry 8 Record entry Clear entry view consolidation entries Consolidation Worksheet Entries Record the reversal of last year's deferral. Note: Enter debits before credits. Accounts Debit Credit Entry 9 Record entry Clear entry view consolidation entries Consolidation Worksheet Entries Record the deferral of this year's unrealized profits on inventory transfers. Note: Enter debits before credits. Accounts Debit Credit Entry 10 c. Prepare the three-port consolidation worksheet as of December 31, 20X7. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries Into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries Int one amount and enter this amount in the credit column of the worksheet.) PRIME CORPORATION & SUBSIDIARY Consolidated Financial Statement Worksheet December 31, 20X7 Consolidation Entries Prime Corp Steak Co. DR CR Consolidated Income statement Sales Other Income Dividend Income Less: COGS Less: Depreciation Expense Less: Other Expenses Consolidated Net Income NCI in Net Income of Steak Company Controlling Interest In Net Income Statement of Retained Earning Beginning Balance Net Income Less: Dividends Declared Ending Balance Balance Sheet Cash Accounts Receivable Inventory Buildings & Equipment Less: Accumulated Depreciation Investment in Steak Company Total Assets Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid in Capital Retained Earnings NCI in NA of Steak Company Total Liabilities & Equity