Question
P Corporation acquired 70 percent ownership of S Company on January 1, 20X6, at underlying book value. At that date, the fair value of the
P Corporation acquired 70 percent ownership of S Company on January 1, 20X6, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 30 percent of the book value of S. On January 1, 20X8, Portfolio sold 1,000 shares of S Company for $20,000 to A Corporation and recorded a $5,000 gain. Trial balances for the companies on December 31, 20X8, contain the following data:
P Corp.
S Company
Debit
Credit
Debit
Credit
Cash
$
70,000
$
20,000
Accounts Receivable
60,000
40,000
Inventory
80,000
60,000
Buildings and Equipment
400,000
200,000
Investment in S
114,000
Cost of Goods Sold
180,000
90,000
Depreciation Expense
40,000
20,000
Other Expenses
17,000
30,000
Dividends Declared
25,000
20,000
Accumulated Depreciation
$
80,000
$
60,000
Accounts Payable
40,000
30,000
Bonds Payable
100,000
40,000
Common Stock ($5 par)
150,000
50,000
Additional Paid-In Capital
75,000
10,000
Retained Earnings
200,000
90,000
Sales
300,000
200,000
Gain on Sale of S Company Stock
5,000
Income from S Company
36,000
$
986,000
$
986,000
$
480,000
$
480,000
S Company's net income was earned evenly throughout the year. Both companies declared and paid their dividends on December 31, 20X8. P uses the fully adjusted equity method in accounting for its investment in S.
Required:
1. Prepare the elimination entries needed to complete a full consolidation worksheet for 20X8.
2. Prepare a consolidation worksheet for 20X8.
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