Pillow Corporation acquired 80 percent ownership of Sheet Company on January 1, 20X7, for $173,000. At that date, the fair value of the noncontrolling interest was $43,250. The trial balances for the two companies on December 31, 20X7, included the following amounts:

1. On January 1, 20X7, Sheet reported net assets with a book value of $150,000 and a fair value of $191,250. Accumulated depreciation on Buildings and Equipment was $60,000 on the acquisition date.
2. Sheets depreciable assets had an estimated economic life of 11 years on the date of combination. Goodwill of $25,000 was recorded at the acquisition.
3. Pillow used the equity method in accounting for its investment in Sheet.
4. Detailed analysis of receivables and payables showed that Sheet owed Pillow $16,000 on December 31, 20X7.

Questions:

A:Record the initial investment in Sheet Company.

B: Record Pillow Corporation's 80% share of Sheet Company's 20X7 income.

C:Record Pillow Corporation's 80% share of Sheet Company's 20X7 dividend.

D: Record the amortization of the excess acquisition price.

Second set of Questions:

A: Record the basic consolidation entry.

B:Record the amortized excess value reclassification entry.

C:Record the excess value (differential) reclassification entry.

D:Record the entry to eliminate the intercompany accounts.

E:Record the optional accumulated depreciation consolidation entry.

Third Set of Questions:

C: Prepare a three-part consolidation worksheet as of December 31, 20X7.

\begin{tabular}{|c|c|c|c|c|} \hline \multirow[b]{2}{*}{ Item } & \multicolumn{2}{|c|}{ Pillow Corporation } & \multicolumn{2}{|c|}{ Sheet Company } \\ \hline & Debit & Credit & Debit & Credit \\ \hline Cash & $38,000 & & $25,000 & \\ \hline Accounts Receivable & 50,000 & & 55,000 & \\ \hline Inventory & 240,000 & & 100,000 & \\ \hline Land & 80,000 & & 20,000 & \\ \hline Buildings and Equipment & 500,000 & & 150,000 & \\ \hline Investment in Sheet Company & 202,000 & & & \\ \hline Cost of Goods Sold & 500,000 & & 250,000 & \\ \hline Depreciation Expense & 25,000 & & 15,000 & \\ \hline Other Expenses & 75,000 & & 75,000 & \\ \hline Dividends Declared & 50,000 & & 20,000 & \\ \hline Accumulated Depreciation & & $155,000 & & $75,000 \\ \hline Accounts Payable & & 70,000 & & 35,000 \\ \hline Mortgages Payable & & 200,000 & & 50,000 \\ \hline Common Stock & & 300,000 & & 50,000 \\ \hline Retained Earnings & & 290,000 & & 100,000 \\ \hline Sales & & 700,000 & & 400,000 \\ \hline Income from Sheet Company & & 45,000 & & \\ \hline & 1,760,000 & 1,760,000 & $710,000 & $710,000 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|c|c|c|c|c|c|} \hline \multicolumn{11}{|c|}{ PILLOW CORPORATION AND SUBSIDIARY } \\ \hline \multicolumn{11}{|c|}{ Worksheet for Consolidated Financial Statements } \\ \hline \multicolumn{11}{|c|}{ December 31,207} \\ \hline & \multirow{2}{*}{\multicolumn{2}{|c|}{PillowCorporation}} & \multirow{2}{*}{\multicolumn{2}{|c|}{SheetCompany}} & \multicolumn{4}{|c|}{ Consolidation Entries } & \multirow{2}{*}{\multicolumn{2}{|c|}{ Consolidated }} \\ \hline & & & & & & Debit & & redit & & \\ \hline \multicolumn{11}{|l|}{ Income Statement } \\ \hline Sales & $ & 700,000 & $ & 400,000 & & & & & $ & 1,100,000 \\ \hline Less: COGS & & (500,000) & & (250,000) & & & & & & (750,000) \\ \hline Less: Depreciation expense & & (25,000) & & (15,000) & & 3,750 & & & & (43,750) \\ \hline Less: Other expenses & & (75,000) & & (75,000) & & & & & & (150,000) \\ \hline Income from Sheet Company & & 45,000 & & & & 45,000 & & 48,000 & & 48,000 \\ \hline Consolidated net income & $ & 145,000 & $ & 60,000 & $ & 48,750 & $ & 48,000 & $ & 204,250 \\ \hline NCl in net income & & & & & & 11,250 & & & & (11,250) \\ \hline Controlling Interest in Net Income & $ & 145,000 & S & 60,000 & s & 60,000 & $ & 48,000 & $ & 193,000 \\ \hline \multicolumn{11}{|l|}{ Statement of Retained Earnings } \\ \hline Beginning balance & \$ & 290,000 & s & 100,000 & s & 100,000 & & & s & 290,000 \\ \hline Net income & & 145,000 & & 60,000 & & 60,000 & & 48,000 & & 193,000 \\ \hline Less: Dividends declared & & (50,000) & & (20,000) & & & & 20,000 & & (50,000) \\ \hline Ending Balance & \$ & 385,000 & s & 140,000 & s & 160,000 & $ & 68,000 & s & 433,000 \\ \hline \multicolumn{11}{|l|}{ Balance Sheet } \\ \hline Cash & \$ & 38,000 & s & 25,000 & & & & & s & 63,000 \\ \hline Accounts receivable & & 50,000 & & 55,000 & & & & 16,000 & & 89,000 \\ \hline Inventory & & 240,000 & & 100,000 & & & & & & 340,000 \\ \hline Land & & 80,000 & & 20,000 & & & & & & 100,000 \\ \hline Buildings and equipment & & 500,000 & & 150,000 & & 41,250 & & & & 691,250 \\ \hline Less: Accumulated depreciation & & (155,000) & & (75,000) & & & & 3,750 & & (233,750) \\ \hline Investment in Sheet Company & & 202,000 & & & & & & 202,000 & & 0 \\ \hline Goodwill & & & & & & 25,000 & & & & 25,000 \\ \hline Total Assets & $ & 955,000 & s & 275,000 & $ & 66,250 & $ & 221,750 & $ & 1,074,500 \\ \hline Accounts payable & $ & 70,000 & $ & 35,000 & $ & 16,000 & & & $ & 89,000 \\ \hline Mortgage payable & & 200,000 & & 50,000 & & & & & & 250,000 \\ \hline Common stock & & 300,000 & & 50,000 & & 50,000 & & & & 300,000 \\ \hline Retained earnings & & 385,000 & & 140,000 & & 160,000 & & 68,000 & & 433,000 \\ \hline NCl in NA of Sheet Company & & & & & & & & 50,500 & & 50,500 \\ \hline Total Liabilities and Equity & \$ & 955,000 & $ & 275,000 & $ & 226,000 & $ & 118,500 & $ & 1,122,500 \\ \hline \end{tabular}