Peppermint Patty Inc. acquired 80% of the stock of Spike Company, its subsidiary, on January 1, 2015, for $360,000. On this date, the balances of Spikes stockholders equity accounts were,

Common stock $260,000

Retained Earnings $28,000

On January 1, 2015, the market value for the 20% of shares not purchased by the parent was $88,000.

On January 1, 2015, Spikes recorded book values were equal to fair values for all items except for the following:

Both companies use the FIFO inventory method and sell all their inventories at least once a year. The year-end net balance of accounts receivable is collected in the following year.

On December 31, 2017, Peppermint Patty sold a building to Spike for $130,000. On this date, the building was carried on Peppermint Pattys books (net of accumulated depreciation) at $100,000. Both companies estimated that the building has a remaining useful life of 5 years on the intercompany sale date, with no salvage value.

Each company routinely sells merchandise to the other company with a profit margin of 30% regardless of the direction of the sale. During 2019, intercompany sales amount to $48,000, of which $28,000 of merchandise remains in the ending inventory of Spike. On December 31, 2019, $16,000 of these intercompany sales remain unpaid. Additionally, Peppermint Pattys December 31, 2018 inventory includes $22,000 of merchandise purchased in the preceding year from Spike. During 2018, intercompany sales amount to $40,000, and on December 31, 2018. $13,500 of these intercompany sales remain unpaid.

Peppermint Patty accounts for its equity investment in Spike using the cost method.

The consolidation worksheet for Peppermint Patty and Spike doe December 31, 2019 appears in the Excel spreadsheet (problem 3).

Required: Prepare in general journal form all your consolidation entries in, then complete the consolidation worksheet. Be sure to show all the schedules you develop and your work for partial credit. Please label all your journal entries.

Book value Fair value Accounts receivable Plant and equipment Patents Notes payable $ 60,000 100,000 70,000 40,000 Remaining useful life (term) $ 52,000 136,000 5 years 154,000 7 years 28,000 4 years Peppermint Patty Spike (920,000) 480,000 (440,000) (400,000) 236,000 (164,000) 24,000 260,000 12.000 296,000 (22,400) (166.400) 19,200 52,600 4,200 76,000 0 188.0001 Cost method Income statement Sales Cost of goods sold Gross profit Gain on land Depreciation & amortization expense Operating expenses Interest expense Total expenses Investment income Net income Statement of retained earnings Retained earnings, 1/1/2019 Net income Dividends declared Retained earnings, 12/31/2019 Balance Sheet Cash Accounts receivable Inventories PPE, net Other assets Patents Investment in Spike Total assets Accounts payable Notes payable Other liabilities Common stock Retained earnings Total liabilities & stockholders' equity (436,600) (166,400) 120,000 1483.000) (220,000) (88,000) 28.000 1280.000) 77,440 108,000 260,000 252,000 114,000 0 360,000 1.171.440 (64,400) (100,000) (44,000) (480,000) (483,000) (1.171.400) 30,000 96,000 92,000 220,000 200,000 20,000 0 658.000 (24,000) (42,000) (52,000) (260,000) (280,000) 1658.000