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On January 1, 2012, P Company acquires an 80 percent interest in S Company. The cost of the acquisition which is for cash in the open market, is $700,000. The value of the noncontrolling interest at the date of purchase was $175,000. On the date of acquisition, S Company has Capital Stock of $250,000 and Retained Earnings of $150,000. In their evaluation of the fair values of the assets and liabilities of S Company, the management of P Company determines that only one asset, building has a fair value different from book value. The fair value of the building, (which is included in Plant Assets) was $85,000 higher than its book value. The building has a remaining life of 4 years. The affiliates regularly engage in transactions with each other. During 2012 and 2013, S Company had the following sales to P Company: YearCost to STransfer price to P CoEnding Balance (at transfer price) 2012$80,000$100,000$18,000 2013$56,000$80,000$6,000 S Company sold a piece of Land to P Company on January 1, 2012 for $50,000. The original cost of the land was $20,000. P Company accounts for its investment in S Company using the equity method. REQUIRED: 1.Prepare an allocation of excess. 2.Prepare eliminating journal entires (need to write out the journal entries). 3.Finish the consolidated financial statement working papers for P Company and S Company for the year ended December 31, 2013.

On January 1, 2012, P Company acquires an 80 percent interest in S Company. The cost of the acquisition which is for cash in the open market, is $700,000. The value of the noncontrolling interest at the date of purchase was $175,000. On the date of acquisition, S Company has Capital Stock of $250,000 and Retained Earnings of $150,000. In their evaluation of the fair values of the assets and liabilities of S Company, the management of P Company determines that only one asset, building has a fair value different from book value. The fair value of the building, (which is included in Plant Assets) was $85,000 higher than its book value. The building has a remaining life of 4 years. The affiliates regularly engage in transactions with each other. During 2012 and 2013, S Company had the following sales to P Company: Year Cost to S Transfer price to P Co Ending Balance (at transfer price) 2012 $80,000 $100,000 $18,000 2013 $56,000 $80,000 $6,000 S Company sold a piece of Land to P Company on January 1, 2012 for $50,000. The original cost of the land was $20,000. P Company accounts for its investment in S Company using the equity method. REQUIRED: 1. 2. 3. Prepare an allocation of excess. Prepare eliminating journal entires (need to write out the journal entries). Finish the consolidated financial statement working papers for P Company and S Company for the year ended December 31, 2013. INCOME STATEMENT Sales Equity earnings in S Comp. Cost of sales P Comp $ (1,675,000) $ (44,440) $ 1,275,000 S Comp. $ (530,000) $ $ $ 175,000 (269,440) $ $ (585,000) $ (269,440) 120,000 $ $ (734,440) $ $ $ $ $ 26,500 210,000 110,000 50,000 $ $ $ 40,000 150,000 40,000 Plant assets - net $ 564,880 $ 550,000 Investment in S Co. $ 848,560 TOTALS $ 1,809,940 $ Consolidated Totals (410,000) BALANCE SHEET Cash Inventories Accounts receivable Land Noncontrolling Interest (75,000) 45,000 $ Consolidation entries Debit Credit (380,000) $ $ Consolidated Totals 35,000 (75,000) $ Noncontrolling Interest 420,000 Expenses Separate Company Net Income Consolidated Net Income Consolidation entries Debit Credit 780,000 NCI in S Company's Net Income P's interest in Consolidated Net Income RETAINED EARNINGS Retained earnings-1/1/13 Net Income Dividends Paid Retained earnings December 31 2013 Accounts payable Noncontrolling interest in S Comp, 1/1/2013 Noncontrolling interest in S Comp, 12/31/13 Common Stock Retained earnings TOTALS P Comp $ (325,500) S Comp. $ (120,000) $ $ $ $ $ $ (750,000) (734,440) (1,809,940) (250,000) (410,000) (780,000)