Question
On January 1, 2013, Boston Company acquired 70 percent of Salem Companys outstanding common stock for $644,000. The fair value of the noncontrolling interest at
On January 1, 2013, Boston Company acquired 70 percent of Salem Companys outstanding common stock for $644,000. The fair value of the noncontrolling interest at the acquisition date was $276,000. Salem reported stockholders equity accounts on that date as follows: |
Common stock$10 par value | $ | 200,000 |
Additional paid-in capital | 60,000 | |
Retained earnings | 440,000 | |
In establishing the acquisition value, Boston determined that in Salem's accounting records it has undervalued a building (with a five-year life) by $80,000. Any remaining excess acquisition-date fair value was allocated to a franchise agreement to be amortized over 10 years. |
During the subsequent years, Salem sold Boston inventory at a 40 percent gross profit rate. Boston consistently sold this merchandise in the year of acquisition or in the period immediately following. Transfers for the three years after this business combination was created amounted to the following: |
Year | Transfer Price | Inventory Remaining at Year-End (at transfer price) | ||||||
2013 | $ | 50,000 | $ | 13,000 | ||||
2014 | 70,000 | 15,000 | ||||||
2015 | 80,000 | 21,000 | ||||||
In addition, Boston sold Salem a fully depreciated equipment on January 1, 2014, for $39,000. The equipment had originally cost Boston $56,000. Salem plans to depreciate these assets over a 6-year period. |
In 2015, Salem earns a net income of $170,000 and distributes $40,000 in cash dividends. These figures increase the subsidiarys Retained Earnings to a $770,000 balance at the end of 2015. |
Boston employs the equity method of accounting and reports $102,820 investment income for 2015 with an Investment account balance of $743,620. Under these circumstances, prepare the worksheet entries required for the consolidation of Boston Company and Salem Company. 1. Prepare Entry G 2. Prepare Entry TA 3. Prepare Entry S |
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