On January 1, 2012, P Company acquires an 80 percent interest in S Company. The cost of the acquisition which is for cash in the open market, is $700,000. The value of the noncontrolling interest at the date of purchase was $175,000. On the date of acquisition, S Company has Capital Stock of $250,000 and Retained Earnings of $150,000. In their evaluation of the fair values of the assets and liabilities of S Company, the management of P Company determines that only one asset, building has a fair value different from book value. The fair value of the building, (which is included in Plant Assets) was $85,000 higher than its book value. The building has a remaining life of 4 years.

The affiliates regularly engage in transactions with each other. During 2012 and 2013, S Company had the following sales to P Company: Year Cost to S Transfer price to P Co Ending Balance (at transfer price) 2012 $80,000 $100,000 $18,000 2013 $56,000 $80,000 $6,000

S Company sold a piece of Land to P Company on January 1, 2012 for $50,000. The original cost of the land was $20,000.

P Company accounts for its investment in S Company using the equity method.

REQUIRED:

1. Prepare an allocation of excess. 2. Prepare eliminating journal entires (need to write out the journal entries). 3. Finish the consolidated financial statement working papers for P Company and S Company for the year ended December 31, 2013.

			Consolidation entries		Noncontrolling Interest	Consolidated Totals
INCOME STATEMENT	P Comp	S Comp.	Debit	Credit
Sales	$ (1,675,000)	$ (530,000)
Equity earnings in S Comp.	$ (44,440)
Cost of sales	$ 1,275,000	$ 420,000
Expenses	$ 175,000	$ 35,000
Separate Company Net Income	$ (269,440)	$ (75,000)
Consolidated Net Income
NCI in S Company's Net Income
P's interest in Consolidated Net Income
RETAINED EARNINGS
Retained earnings-1/1/13	$ (585,000)	$ (380,000)
Net Income	$ (269,440)	$ (75,000)
Dividends Paid	$ 120,000	$ 45,000
Retained earnings
December 31 2013	$ (734,440)	$ (410,000)
BALANCE SHEET
Cash	$ 26,500	$ 40,000
Inventories	$ 210,000	$ 150,000
Accounts receivable	$ 110,000	$ 40,000
Land	$ 50,000
Plant assets - net	$ 564,880	$ 550,000
Investment in S Co.	$ 848,560
TOTALS	$ 1,809,940	$ 780,000
			Consolidation entries		Noncontrolling Interest	Consolidated Totals
	P Comp	S Comp.	Debit	Credit
Accounts payable	$ (325,500)	$ (120,000)
Noncontrolling interest in S Comp, 1/1/2013
Noncontrolling interest in S Comp, 12/31/13
Common Stock	$ (750,000)	$ (250,000)
Retained earnings	$ (734,440)	$ (410,000)
TOTALS	$ (1,809,940)	$ (780,000)