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 Spike’s 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, Spike’s 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 Patty’s 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 Patty’s 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.

 
 

Accounts receivable Plant and equipment Patents Notes payable Book value $ 60,000 100,000 70,000 40,000 Fair value $ 52,000 136,000 154,000 28,000 Remaining useful life (term) 5 years 7 years 4 years