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In January 1, 2019, Strolle Company acquired a 70% interest in Hailey Company for a purchase price that was $500,000 over the book value of

In January 1, 2019, Strolle Company acquired a 70% interest in Hailey Company for a purchase price that was $500,000 over the book value of Haileys Stockholders Equity on the acquisition date. Spring uses the equity method to account for its investment in Hailey. Strolle 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

Hailey sells inventory to Strolle (upstream) which includes that inventory in products that it (Strolle), 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

Cost 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.

Strolle and Hailey report the following financial statements at December 31, 2025:

Income Statement

Strolle

Hailey

Sales

$4,500,000

$750,000

Cost of goods sold

-3,825,000

(660,000)

Gross Profit

675,000

90,000

Income (loss) from subsidiary

13,939

Operating expenses

-323,000

-34,000

Net income

$365,939

$56,000

Statement of Retained Earnings

Strolle

Hailey

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

Strolle

Hailey

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

Requirement: Prepare the "E" Consolidation Entry

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