Question
Perke Corporation purchased 80% of the stock of Superstition Company for $1,970,000 on January 1, 2012. On this date, the fair value of the assets
Perke Corporation purchased 80% of the stock of Superstition Company for $1,970,000 on January 1, 2012. On this date, the fair value of the assets and liabilities of Superstition Company was equal to their book value except for the inventory and equipment accounts. The inventory had a fair value of $725,000 and a book value of $600,000. Sixty percent of Superstition Company's inventory was sold in 2012; the remainder was sold in 2013. The equipment had a book value of $900,000 and a fair value of $1,075,000. The remaining useful life of the equipment is seven years. The balances in Superstition Company's capital stock and retained earnings accounts on the date of acquisition were $1,200,000 and $600,000, respectively. Perke uses the complete equity method to account for its investment in Superstition. The following financial data are from Superstition Company's records.
Net income: (2012) $750,000; (2013) $900,000
Dividends declared: (2012) $150,000; (2013) $225,000
Required:
A. In general journal form, prepare the entries on Perke Company's books to account for its investment in Superstition Company for 2012 and 2013.
B. Prepare the eliminating entries necessary for the consolidated statements workpapers in 2012 and 2013.
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