On January 1, 20X1, LGM Company purchased 80% of the outstanding common stock of MEL Company for $296,000. On this date, the book value of MELs net asset was equal to $370,000. LGM uses the equity method to account for investments. Below is the trial balance for both LGM and MEL as of December 31, 20X1

LGM MEL

Cash 191,000 46,000

Accounts Receivable 140,000 60,000

Inventory 190,000 120,000

Investment in MEL 350,400 0

Land 250,000 125,000

Buildings & Equipment 875,000 250,000

Cost of Goods Sold 250,000 155,000

Depreciation Expense 65,000 12,000

Selling & Adm. Expense 280,000 50,000

Dividends Declared 80,000 25,000

Accumulated Depreciation 565,000 36,000

Accounts Payable 77,000 27,000

Bonds Payable 250,000 100,000

Common Stock 625,000 250,000

Retained Earnings 280,000 120,000

Sales 800,000 310,000

Income from MEL 74,400 0

Required:

1. Prepare all necessary journal entries to record the investment in MEL.

2. Prepare the book value calculations.

3. Prepare all necessary elimination entries for the consolidating worksheet of December 31, 20X1.

4. Complete the consolidating worksheet for December 31, 20X1.

5. Prepare the following financial statements:

a. Balance Sheet

b. Income Statement

6. Determine the amount of total revenue, total expense and net income to be reported as of December 31, 20X1 under the following consolidation alternatives:

a. Parent Company Concept

b. Economic Entity Concept