Information:

On January 1, 2015, the Herco Company purchased 70% of the outstanding voting share of the Wing Company for $ 850,000 in cash. On that date, the Wing Company had retained earnings of $ 400,000 and common shares of $ 500,000. On the acquisition date, the identifiable assets and liabilities of the Wing Company had fair values that were equal to their carrying values except for the building, which had a fair value 200,000 greater that its carrying value, and long term liabilities which had fair values that were $ 100,000 great than their carrying values. The building had a remaining useful life of ten years on January 1, 2015 and the long term liabilities mature on December 31, 2021. Both companies use the straight line method to calculate all depreciation and amortization. The trial balances of the Herco Company and Wing Company on December 31, 2019 are contained on the attached excel sheet.

Included in Wings Dec. 31, 2019 inventory were goods purchased from Herco in 2019 for $ 30,000. Herco charges all customers 20% over cost. Included in Hercos Dec. 31, 2019 inventory were goods purchased from Wing in 2019 for $40,000. Wing charges all customers a markup on cost of 25%.

On Dec. 31, 2019 Herco purchased a bond investment at a cost of $ 250,000 in the open market which represented 50% of the bond payable that had been issued at par value by Wing in January 2019.

Goodwill was impaired by $ 50,000 at December 31, 2019.

No changes in common shares have occurred in Wing since the date of acquisition.

Required:

For the Herco Company and its subsidiary, the Wing Company, prepare in worksheet format (using the attached excel worksheet):

1 (a).The consolidated income statement for the year ended December 31, 2019.

1 (b).The consolidated statement of financial position at December 31, 2019.

2.Prepare all required consolidation journal entries on a second excel page attached to your consolidation worksheet.

Hints:

1-Preparation of an Acquisition Differential Amortization Schedule may be of assistance.

2-Ignore all tax effects.

Consolidation Problem Herco Consolidation Adjustments Trial Balance December 31, 2019. Consolidated Income Statement For the Year Ended Dec. 31, 2019. Herco Consolidated Statement of Financial Position December 31, 2019. Herco Debit Herco Credit Wing Debit Wing Credit Debit Debit Credit Credit Debit Credit Debit Credit Assets Cash Accounts receivable Account receivable, Wing Inventories Equipment (net) Buildings (net) Investment in Bond Investment in Wing (cost) 50,000 220,000 80,000 2,700,000 6,150,000 2,600,000 250,000 850,000 10,000 100,000 0 520,000 2,500,000 500,000 280,000 20,000 4,000,000 Liabilities and Equity Accounts payable Account payable, Wing Long term liabilities Bond payable Common shares Retained earnings, beginning of year Dividends declared and paid in year 170,000 0 600,000 500,000 500,000 1,600,000 3,000,000 4,500,000 200,000 20,000 3,500,000 300,000 900,000 30,000 Revene and Expenses Sales revenue Other revenue Cost of goods sold Depreciation expense Other expenses 2,000,000 300,000 200,000 400,000 100,000 150,000 15,600,000 15,600,000 4,300,000 4,300,000 Consolidation Problem Herco Consolidation Adjustments Trial Balance December 31, 2019. Consolidated Income Statement For the Year Ended Dec. 31, 2019. Herco Consolidated Statement of Financial Position December 31, 2019. Herco Debit Herco Credit Wing Debit Wing Credit Debit Debit Credit Credit Debit Credit Debit Credit Assets Cash Accounts receivable Account receivable, Wing Inventories Equipment (net) Buildings (net) Investment in Bond Investment in Wing (cost) 50,000 220,000 80,000 2,700,000 6,150,000 2,600,000 250,000 850,000 10,000 100,000 0 520,000 2,500,000 500,000 280,000 20,000 4,000,000 Liabilities and Equity Accounts payable Account payable, Wing Long term liabilities Bond payable Common shares Retained earnings, beginning of year Dividends declared and paid in year 170,000 0 600,000 500,000 500,000 1,600,000 3,000,000 4,500,000 200,000 20,000 3,500,000 300,000 900,000 30,000 Revene and Expenses Sales revenue Other revenue Cost of goods sold Depreciation expense Other expenses 2,000,000 300,000 200,000 400,000 100,000 150,000 15,600,000 15,600,000 4,300,000 4,300,000