Question
Pico acquired 90% of Salsas outstanding shares on January 2016 for $342,000 in cash. On that date, the noncontrolling interest had a fair value of
Pico acquired 90% of Salsas outstanding shares on January 2016 for $342,000 in cash. On that date, the noncontrolling interest had a fair value of $38,000 and Salsas common stock and retained earnings accounts were $150,000 and $176,000, respectively. Salsa owned a building with a nine-year remaining life that was undervalued by $18,000. Any remaining excess cost was attributable to unpatented technology having a six-year life. Salsa sells inventory to Pico as follows: Year Cost to Salsa Transfer Price to Pico Inventory remaining at year end (at transfer price) 2016 $69,000 $115,000 $25,000 2017 81,000 135,000 37,500 2018 92,800 160,000 50,000 At December 31, 2018, Pico owes Salsa $16,000 for inventory it purchased during the period. Financials as of December 31, 2018 are attached.
Pico | Salsa | |
Sales revenues | (862,000) | (366,000) |
Cost of goods sold | 515,000 | 209,000 |
Expenses | 185,400 | 67,000 |
Equity in subisidiary income | (68,400) | - |
Net income | (230,000) | (90,000) |
Retained earnings 1/1/18 | (488,000) | (278,000) |
Net income | (230,000) | (90,000) |
Dividends | 136,000 | 27,000 |
Retained earnings 12/31/18 | (582,000) | (341,000) |
Cash and receivables | 146,000 | 98,000 |
Inventory | 255,000 | 136,000 |
Investment in Salsa | 450,000 | - |
Land, buildings and equipment, net | 964,000 | 328,000 |
Total assets | 1,815,000 | 562,000 |
Liabilities | (718,000) | (71,000) |
Common stock | (515,000) | (150,000) |
Retained earnings, 12/31/18 | (582,000) | (341,000) |
Total liabilities and equity | (1,815,000) | (562,000) |
1) Prepare the elimination entries
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