On January 1, 2018, 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 2018 and 2019, S Company had the following sales to P Company: Transfer price to P Co Cost to s Ending Balance (at transfer price) 2012 $100,000 $80,000 $18,000 2013 $80,000 $56,000 $6,000 Year S Company sold a piece of Land to P Company on January 1, 2018 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: 3. Prepare an allocation of excess. Prepare eliminating journal entires (need to write out the journal entries). Finish the consolidated financial statement working papers for P Company and S Company for the year ended December 31, 2019 Consolidation entries Debit Credit Noncontrolling Interest INCOME STATEMENT Sales Equity earnings in S Comp. Cost of sales Consolidated Totals P Comp S $ (1.675.000) $ (44.440 $ 1.275,000 Comp. $ (530.000) $420,000 $ $ 175,000 (269.440) $ 5 35.000 (75.000) Expenses separate company Net Teens Consolidated Net Income NCI in s Company's Net Income Ps interest in Consolidated Net Income RETAINED EARNINGS Retained earnings-1/1/19 (585.000) $ (380.000) $ $ (269.440) 120.000 $ $ (75.000) 45,000 Net Income Dividends Paid Retained earnings December 31 2019 (734.440) 1410.000) BALANCE SHEET Cash Inventories Accounts receivable Land $ 40.000 $150.000 $ 40.000 $ $ $ $ $ $ 26,500 210.000 110.000 50.000 564.880 848,560 $ 550.000 Plant assets -net Investment in S Co. TOT ALS S 1.809.940 780.000 Consolidation entries Debit Credit Noncontrolling s Consolidated Totals P CompS $ (325,500) Comp. $ (120.000) Accounts payable Noncontrolling interest in S Comp. In 2014 con controlling interest in s Common Stock 1 Retained earnings TOTALS 5 (750,000) $ (734.440) s 01.800.940) $ (250.000) $ (410.000) S (780.000) On January 1, 2018, 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 2018 and 2019, S Company had the following sales to P Company: Transfer price to P Co Cost to s Ending Balance (at transfer price) 2012 $100,000 $80,000 $18,000 2013 $80,000 $56,000 $6,000 Year S Company sold a piece of Land to P Company on January 1, 2018 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: 3. Prepare an allocation of excess. Prepare eliminating journal entires (need to write out the journal entries). Finish the consolidated financial statement working papers for P Company and S Company for the year ended December 31, 2019 Consolidation entries Debit Credit Noncontrolling Interest INCOME STATEMENT Sales Equity earnings in S Comp. Cost of sales Consolidated Totals P Comp S $ (1.675.000) $ (44.440 $ 1.275,000 Comp. $ (530.000) $420,000 $ $ 175,000 (269.440) $ 5 35.000 (75.000) Expenses separate company Net Teens Consolidated Net Income NCI in s Company's Net Income Ps interest in Consolidated Net Income RETAINED EARNINGS Retained earnings-1/1/19 (585.000) $ (380.000) $ $ (269.440) 120.000 $ $ (75.000) 45,000 Net Income Dividends Paid Retained earnings December 31 2019 (734.440) 1410.000) BALANCE SHEET Cash Inventories Accounts receivable Land $ 40.000 $150.000 $ 40.000 $ $ $ $ $ $ 26,500 210.000 110.000 50.000 564.880 848,560 $ 550.000 Plant assets -net Investment in S Co. TOT ALS S 1.809.940 780.000 Consolidation entries Debit Credit Noncontrolling s Consolidated Totals P CompS $ (325,500) Comp. $ (120.000) Accounts payable Noncontrolling interest in S Comp. In 2014 con controlling interest in s Common Stock 1 Retained earnings TOTALS 5 (750,000) $ (734.440) s 01.800.940) $ (250.000) $ (410.000) S (780.000)
