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On January 1, 2020, Franklin Corp. acquired a 55% interest in Sanchez Corp. Franklin paid for the transaction with $3 million cash and 500,000 shares

On January 1, 2020, Franklin Corp. acquired a 55% interest in Sanchez Corp. Franklin paid for the transaction with $3 million cash and 500,000 shares of Franklin common stock (par value $1.00 per share). At the time of the acquisition, Sanchez's book value was $16,970,000. On January 1, Franklin stock had a market value of $14.90 per share and there was no control premium in this transaction. Any consideration transferred over book value is assigned to goodwill.

Sanchez had the following balances on January 1, 2020.

Land: Book value $ 1,700,000 Fair value $ 2,550,000

Buildings (seven-year remaining life) Book value $2,700,000 Fair value $3,400,000

Equipment (five-year remaining life) Book value $3,700,000 Fair value $3,300,000

For internal reporting purposes, Franklin employed the equity method to account for this investment.

The following account balances are for the year ending December 31, 2020 for both companies.

Franklin Corp.

Sanchez Corp.

Revenues

($298,000,000)

($103,750,000)

Expenses

271,000,000

95,800,000

Equity in income of Sanchez

(4,361,500)

0

Net income

($31,361,500)

($7,950,000)

Retained earnings, January 1, 2020

($2,500,000)

($100,000)

Net income (above)

($31,361,500)

($7,950,000)

Dividends paid

5,000,000

3,000,000

Retained earnings, December 31, 2020

($28,861,500)

($5,050,000)

Current assets

$30,500,000

$20,800,000

Investment in Sanchez

13,161,500

0

Land

1,500,000

1,700,000

Buildings

5,600,000

2,360,000

Equipment (net)

3,100,000

2,960,000

Total assets

$53,861,500

$27,820,000

Accounts payable

($3,100,000)

($4,900,000)

Notes payable

0

(1,000,000)

Common stock

(2,900,000)

(6,000,000)

Additional paid-in capital

(19,000,000)

(10,870,000)

Retained earnings, December 31, 2020 (above)

(28,861,500)

(5,050,000)

Total liabilities and stockholders equity

(53,861,500)

(27,820,000)

Required:

Prepare consolidation entries for this business combination. For all consolidation entries, label them as S, A, I, D, or E. Do not prepare the worksheet. Assume goodwill has been reviewed and there is no goodwill impairment.

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