P5-36 Comprehensive Problem: Differential Apportionment in Subsequent Period LO 5-2 Pillow Corporation acquired 80 percent ownership of Sheet Company on January 1, 20X7, for $173,000. At that date, the fair value of the noncontrolling interest was $43,250. The trial balances for the two companies on December 31, 20X8, included the following amounts: Sheet Company Debit Credit 31,000 71,000 118,000 30,000 150,000 Item Cash Accounts Receivable Inventory Land Buildings & Equipment Investment in Sheet Company Cost of Goods Sold Depreciation Expense Other Expenses Dividends Declared Accumulated Depreciation Accounts Payable Mortgages Payable Common Stock Retained Earnings Sales Income from Sheet Company Pillow Corporation Debit Credit 59,000 83,000 275,000 80,000 500,000 206, 200 490,000 25,000 62,000 45,000 180,000 86,000 200,000 300,000 385,000 650,000 24,200 $1,825, 200 $1,825, 200 310,000 15,000 100,000 25,000 90,000 30,000 70,000 50,000 140,000 470,000 $850,000 $850,000 Additional Information 1. On January 1, 20X7, Sheet reported net assets with a book value of $150,000 and a fair value of $191,250. Goodwill of $25,000 was recorded at the acquisition. Accumulated depreciation on buildings and equipment was $60,000 on the acquisition date. Sheet's depreciable assets had an estimated economic life of 11 years on the date of combination 2. At December 31, 20X8, Pillow's management reviewed the amount attributed to goodwill and concluded goodwill was impaired and should be reduced to $14,000. Goodwill and goodwill impairment were assigned proportionately to the controlling and noncontrolling shareholders. 3. Pillow used the equity method in accounting for its investment in Sheet. 4. Detailed analysis of receivables and payables showed that Pillow owed Sheet $9,000 on December 31, 20X8. 5. Assume that the investment in Sheet Company at 1/1/X8 is $202,000. Required: a. Prepare all journal entries recorded by Pillow with regard to its investment in Sheet during 20X8. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) * Answer is complete but not entirely correct. No Event General Journal Debit Credit 1 36,000 Investment in Sheet Company Income from Sheet Company 36,000 B 2 20,000 Cash Investment in Sheet Company 20.000 3 3,000 X Income from Sheet Company Investment in Sheet Company 3,000 X b. Prepare all consolidation entries needed to prepare a full set of consolidated financial statements for 20X8. (If no entry is required for a transaction/event, select "No journal entry required in the first account field.) Answer is not complete. No Event Accounts Credit 1 Common stock Debit 50,000 140,000 36,000 7,000 X OOO Retained earnings Income from Sheet Company NCI in Nl of Sheet Company Dividends declared Investment in Sheet Company NCI in NA of Sheet Company OOOOOOO 25.000 168,000 40,000 B 2 Depreciation expense Income from Sheet Company NCI in Nl of Sheet Company 3 41,250 25,000 Buildings and equipment Goodwill Accumulated depreciation Investment in Sheet Company NCI in NA of Sheet Company D 4 9,000 Accounts payable Accounts receivable oo 9,000 E 5 72,000 X Accumulated depreciation Buildings and equipment 72,000 X P5-36 Comprehensive Problem: Differential Apportionment in Subsequent Period LO 5-2 Pillow Corporation acquired 80 percent ownership of Sheet Company on January 1, 20X7, for $173,000. At that date, the fair value of the noncontrolling interest was $43,250. The trial balances for the two companies on December 31, 20X8, included the following amounts: Sheet Company Debit Credit 31,000 71,000 118,000 30,000 150,000 Item Cash Accounts Receivable Inventory Land Buildings & Equipment Investment in Sheet Company Cost of Goods Sold Depreciation Expense Other Expenses Dividends Declared Accumulated Depreciation Accounts Payable Mortgages Payable Common Stock Retained Earnings Sales Income from Sheet Company Pillow Corporation Debit Credit 59,000 83,000 275,000 80,000 500,000 206, 200 490,000 25,000 62,000 45,000 180,000 86,000 200,000 300,000 385,000 650,000 24,200 $1,825, 200 $1,825, 200 310,000 15,000 100,000 25,000 90,000 30,000 70,000 50,000 140,000 470,000 $850,000 $850,000 Additional Information 1. On January 1, 20X7, Sheet reported net assets with a book value of $150,000 and a fair value of $191,250. Goodwill of $25,000 was recorded at the acquisition. Accumulated depreciation on buildings and equipment was $60,000 on the acquisition date. Sheet's depreciable assets had an estimated economic life of 11 years on the date of combination 2. At December 31, 20X8, Pillow's management reviewed the amount attributed to goodwill and concluded goodwill was impaired and should be reduced to $14,000. Goodwill and goodwill impairment were assigned proportionately to the controlling and noncontrolling shareholders. 3. Pillow used the equity method in accounting for its investment in Sheet. 4. Detailed analysis of receivables and payables showed that Pillow owed Sheet $9,000 on December 31, 20X8. 5. Assume that the investment in Sheet Company at 1/1/X8 is $202,000. Required: a. Prepare all journal entries recorded by Pillow with regard to its investment in Sheet during 20X8. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) * Answer is complete but not entirely correct. No Event General Journal Debit Credit 1 36,000 Investment in Sheet Company Income from Sheet Company 36,000 B 2 20,000 Cash Investment in Sheet Company 20.000 3 3,000 X Income from Sheet Company Investment in Sheet Company 3,000 X b. Prepare all consolidation entries needed to prepare a full set of consolidated financial statements for 20X8. (If no entry is required for a transaction/event, select "No journal entry required in the first account field.) Answer is not complete. No Event Accounts Credit 1 Common stock Debit 50,000 140,000 36,000 7,000 X OOO Retained earnings Income from Sheet Company NCI in Nl of Sheet Company Dividends declared Investment in Sheet Company NCI in NA of Sheet Company OOOOOOO 25.000 168,000 40,000 B 2 Depreciation expense Income from Sheet Company NCI in Nl of Sheet Company 3 41,250 25,000 Buildings and equipment Goodwill Accumulated depreciation Investment in Sheet Company NCI in NA of Sheet Company D 4 9,000 Accounts payable Accounts receivable oo 9,000 E 5 72,000 X Accumulated depreciation Buildings and equipment 72,000 X