Question
On January 1, 20X5, Pond Corporation purchased 75 percent of Skate Companys stock at underlying book value. At that date, the fair value of the
On January 1, 20X5, Pond Corporation purchased 75 percent of Skate Companys stock at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 25 percent of Skates book value. The balance sheets for Pond and Skate at January 1, 20X8, and December 31, 20X8, and income statements for 20X8 were reported as follows:
20X8 Balance Sheets | ||||||||||||||||
Pond Corporation | Skate Company | |||||||||||||||
January 1 | December 31 | January 1 | December 31 | |||||||||||||
Assets | ||||||||||||||||
Cash | $ | 66,600 | $ | 62,100 | $ | 14,000 | $ | 56,000 | ||||||||
Accounts Receivable | 141,000 | 187,000 | 75,000 | 80,000 | ||||||||||||
Interest & Other Receivables | 50,000 | 55,000 | 15,000 | 17,000 | ||||||||||||
Inventory | 108,000 | 148,000 | 59,000 | 59,000 | ||||||||||||
Land | 67,000 | 67,000 | 28,000 | 28,000 | ||||||||||||
Buildings & Equipment | 403,000 | 403,000 | 245,000 | 245,000 | ||||||||||||
Accumulated Depreciation | (134,000 | ) | (169,000 | ) | (57,000 | ) | (81,000 | ) | ||||||||
Investment in Skate Company: | ||||||||||||||||
Stock | 133,800 | 150,750 | ||||||||||||||
Bonds | 37,200 | 36,800 | ||||||||||||||
Investment in Tin Co. Bonds | 131,000 | 130,000 | ||||||||||||||
Total Assets | $ | 1,003,600 | $ | 1,070,650 | $ | 379,000 | $ | 404,000 | ||||||||
Liabilities & Equities | ||||||||||||||||
Accounts Payable | $ | 196,100 | $ | 124,650 | $ | 105,000 | $ | 60,500 | ||||||||
Interest & Other Payables | 39,000 | 44,000 | 7,000 | 12,000 | ||||||||||||
Bonds Payable | 286,000 | 286,000 | 86,000 | 86,000 | ||||||||||||
Bond Discount | (5,000 | ) | (4,500 | ) | ||||||||||||
Common Stock | 132,000 | 132,000 | 24,000 | 24,000 | ||||||||||||
Additional Paid-In Capital | 137,000 | 137,000 | 13,000 | 13,000 | ||||||||||||
Retained Earnings | 213,500 | 347,000 | 149,000 | 213,000 | ||||||||||||
Total Liabilities & Equities | $ | 1,003,600 | $ | 1,070,650 | $ | 379,000 | $ | 404,000 | ||||||||
20X8 Income Statements | |||||||||||||||||
Pond Corporation | Skate Company | ||||||||||||||||
Sales | $ | 470,000 | $ | 270,000 | |||||||||||||
Income from Skate Co. | 57,900 | ||||||||||||||||
Interest Income | 19,500 | ||||||||||||||||
Total Revenue | $ | 547,400 | $ | 270,000 | |||||||||||||
Cost of Goods Sold | $ | 285,000 | $ | 129,000 | |||||||||||||
Other Operating Expenses | 45,000 | 35,000 | |||||||||||||||
Depreciation Expense | 30,000 | 19,000 | |||||||||||||||
Interest Expense | 19,000 | 5,500 | |||||||||||||||
Miscellaneous Expenses | $ | 10,900 | $ | 389,900 | $ | 8,500 | $ | 197,000 | |||||||||
Net Income | $ | 157,500 | $ | 73,000 | |||||||||||||
Additional Information
- Pond sold a building to Skate for $85,000 on December 31, 20X7. Pond had purchased the building for $145,000 and was depreciating it on a straight-line basis over 25 years. At the time of sale, Pond reported accumulated depreciation of $87,000 and a remaining life of 10 years. Assume Pond uses the fully adjusted equity method.
- On July 1, 20X6, Skate sold land that it had purchased for $24,000 to Pond for $37,000. Pond is planning to build a new warehouse on the property prior to the end of 20X9.
- Skate issued $86,000, par value 10-year bonds with a coupon rate of 10 percent on January 1, 20X5, at $81,000. On December 31, 20X7, Pond purchased $34,400 par value of Skates bonds for $37,200. Both companies amortize bond premiums and discounts on a straight-line basis. Interest payments are made on July 1 and January 1.
- Pond and Skate paid dividends of $24,000 and $9,000, respectively, in 20X8. JE Needed Record the basic consolidation entry.B
-
Record the entry to eliminate the gain on the building and to correct asset's basis.C
-
Record the adjustment to depreciation expense.D
-
Record the entry to remove the land gain.E
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Record the bond consolidation entry.F
-
Record the entry to eliminate intercompany receivable and payable due to bond interest.
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