On January 1, 2020, Pantop Corporation acquired 85% of the outstanding common stock of Sunny Company for $527,000. There was no control premium. The following
- On January 1, 2020, Pantop Corporation acquired 85% of the outstanding common stock of Sunny Company for $527,000. There was no control premium.
The following information about Sunny Company on January 1, 2020 was available:
| Book value | Fair value |
Cash | 193,000 | 193,000 |
Inventory | 40,000 | 39,400 |
Building | 180,000 | 200,000 |
Total | 413,000 | 432,400 |
Accounts Payable | 3,000 | 3,000 |
Common Stock | 200,000 |
|
Add. Paid-in Capital | 110,000 |
|
Retained Earnings | 100,000 |
|
Total | 413,000 |
|
Pantop uses the complete equity method to account for its investment in Sunny. During 2020, Sunny had a net income of $80,000. The remaining useful life of the building was five years with no salvage value. Sunny uses straight line depreciation. Sunnys cost of goods sold (FIFO) was $70,000 in 2020. On December 23, 2020, Sunny declared and paid $48,000 cash dividend to its shareholders. Goodwill was unimpaired as of December 31, 2020.
(i) Prepare journal entries for Pantop to record under the complete equity method of accounting the operating results of Sunny in 2020.
(ii) Prepare the working paper eliminating entries C, E, R, O and N (in journal entry format) for Pantop Corporation and subsidiary for the year ended December 31, 2020.
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