Question
On January 1, 2020, Wondersome Company acquired a 70% interest in Philmore Company for a purchase price that was $240,000 over the book value of
On January 1, 2020, Wondersome Company acquired a 70% interest in Philmore Company for a purchase price that was $240,000 over the book value of the Philmore's Stockholders' Equity on the acquisition date.Wondersome uses the equity method to account for its investment in Philmore. Wondersome assigned the acquisition-date AAP as follows:
AAP Items
Initial Fair Value
Useful Life (years)
PPE, net
$90,000
20
Patent
150,000
10
$240,000
Philmore sells inventory to Wondersome (upstream) which includes that inventory in products that it, ultimately, sells to customers outside of the controlled group.You have compiled the following data for the years ending 2022 and 2023:
2022
2023
Transfer price for inventory sale
$94,500
$70,000
Cost of goods sold
-64,500
-45,000
Gross profit
$30,000
$25,000
% inventory remaining
30%
20%
Gross profit deferred
$9,000
$5,000
EOY Receivable/Payable
$32,000
$29,500
The inventory not remaining at the end of the year has been sold outside of the controlled group.
The parent and the subsidiary report the following financial statements at December 31, 2023:
Income Statement
Wondersome
Philmore
Sales
$2,400,000
$602,400
Cost of goods sold
-1,580,000
-465,398
Gross Profit
820,000
137,002
Income (loss) from subsidiary
45,851
Operating expenses
-711,200
-56,000
Net income
$154,651
$81,002
Statement of Retained Earnings
Wondersome
Philmore
BOY Retained Earnings
$3,500,000
$608,000
Net income
154,651
81,002
Dividends
-85,000
-15,000
EOY Retained Earnings
$3,569,651
$674,002
Continued
Balance Sheet
Wondersome
Philmore
Assets:
Cash
$450,000
$84,700
Accounts receivable
425,000
113,200
Inventory
654,000
142,100
Equity Investment
803,251
PPE, net
4,438,400
1,000,002
$6,770,651
$1,340,002
Liabilities and Stockholders' Equity:
Current Liabilities
$505,900
$99,500
Long-term Liabilities
703,500
250,000
Common Stock
402,000
75,300
APIC
1,589,600
241,200
Retained Earnings
3,569,651
674,002
$6,770,651
$1,340,002
Required:
a.Compute the EOY noncontrolling interest equity balance
b.Prepare the consolidation journal entries.
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Intermediate Accounting Reporting and Analysis
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach
3rd edition
9781337909402, 978-1337788281
