P7-32 Consolidation Worksheet in Year of Intercompany Transfer LO 7-4, 7-5 Prime Company holds 80 percent of Suspect Company's stock, acquired on January 1, 20x2, for $160,000. On the acquisition date, the fair value of the noncontrolling interest was $40,000. Suspect reported retained earnings of $50,000 and had $100,000 of common stock outstanding. Prime uses the fully adjusted equity method in accounting for its investment in Suspect. Trial balance data for the two companies on December 31, 20X6, are as follows: Suspect Company Debit Credit $ 35,000 90,000 80,000 150,000 60,000 15,000 5,000 Item Cash and Accounts Receivable Inventory Land Buildings and Equipment Investment in Suspect Co. Cost of Goods Sold Depreciation and Amortization Expense Other Expenses Dividends Declared Accumulated Depreciation Accounts Payable Bonds Payable Common Stock Retained Earnings Sales Gain on Sale of Equipment Income from Suspect Co. Total Prime Company Debit Credit $ 113,000 260,000 80,000 500,000 191,600 140,000 25,000 15,000 30,000 $ 205,000 60,000 200,000 300,000 322,000 240,000 20,000 7,600 $1,354,600 $1,354,600 5,000 $ 45,000 20,000 50,000 100,000 95,000 130,000 $440,000 $440,000 Additional Information 1. At the date of combination, the book values and fair values of all separately identifiable assets and liabilities of Suspect were the same. At December 31, 20X6, the management of Prime reviewed the amount attrbuted to goodwill as a result of its purchase of Suspect stock and concluded an impairment loss of $18,000 should be recognized in 20x6 and shared proportionately between the controlling and noncontrolling shareholders. 2. On January 1, 20x5, Suspect sold land that had cost $8,000 to Prime for $18,000. 3. On January 1, 20X6, Prime sold to Suspect equipment that it had purchased for $75,000 on January 1, 20X1. The equipment has a total economic life of 15 years and was sold to Suspect for $70,000. Both companies use straight-line depreciation. 4. There was $7,000 of intercompany receivables and payables on December 31, 20x6. Required: a. Give all consolidation entries needed to prepare a consolidation worksheet for 20X6. (If no entry is required for transaction/event, select "No journal entry required" in the first account field.) No Entry Credit Debit 40,000 X 1 Accounts Investment in Suspect Co. Income from Suspect Co. 40.000 X x x x X 2 Cash and accounts receivable 40,000 x x x 3 x x x x x D 4 E 5 F 6 x X G 7 b. Prepare a three-part worksheet for 20X6. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.) PRIME COMPANY AND SUBSIDIARY Consolidated Financial Statement Worksheet December 31, 20X6 Consolidation Entries Prime Suspect DR CR Co. Co. Consolidated x x x X X 0 0 0 0 0 X 0 0 0 0 0 Income Statement Sales Gain on Sale of Equipment Less: COGS Less: Depr. & Amort. Expense Less: Other Expenses Less: Goodwill Impairment Loss Income from Suspect Co. Consolidated Net Income NCI in Net Income Controlling Interest in NI Statement of Retained Earnings Beginning Balance Net Income Less: Dividends Declared Ending Balance Balance Sheet Cash and Accounts Receivable Inventory Land Buildings & Equipment Less: Accumulated Depreciation Investment in Suspect Co. Goodwill Total Assets X X 0 0 0 0 0 x x x x x X x x X X x 0 0 0 0 0 c. Prepare a consolidated balance sheet, income statement, and retained earnings statement for 20X6. (Be sure to list the assets and liabilities in order of their liquidity. Amounts to be deducted should be indicated by a minus sign.) PRIME COMPANY AND SUBSIDIARY Consolidated Balance Sheet December 31, 20X6 Assets x 0 0 Total Assets Liabilities x $ 0 Total Liabilities Stockholders' Equity Controlling Interest: x O $ 0 Total Controlling Interest Total Noncontrolling Interest Total Stockholders' Equity Tatal liabilitiae and Dine holdere Fun x 0 Is PRIME COMPANY AND SUBSIDIARY Consolidated Income Statement Year Ended December 31, 20X6 0 Total expenses Consolidated net income 0 x $ Income to controlling interest 0 "Red text indicates no response was expected in a celor a formula-based calculation is incorrect, no points deducted. PRIME COMPANY AND SUBSIDIARY Consolidated Retained Earnings Statement Year Ended December 31, 20X6 Retained Earnings, January 1, 20X6 Income to Controlling Interest, 20X6 $ 0 Dividends Declared, 20X6 Retained Earnings, December 31, 20X6 $ "Red text indicates no response was expected in a celor a formula-based calculation is 0 incorrere points deducted