Question
Pony Corporation acquired all of Stallion Companys common shares on January 1, 20X5, for $180,000. On that date, the book value of the net assets
Pony Corporation acquired all of Stallion Companys common shares on January 1, 20X5, for $180,000. On that date, the book value of the net assets reported by Stallion was $150,000. The entire differential was assigned to depreciable assets with a six-year remaining economic life from January 1, 20X5. The adjusted trial balances for the two companies on December 31, 20X5, are as follows:
Pony Corporation | Stallion Company | |||||||||||||||
Item | Debit | Credit | Debit | Credit | ||||||||||||
Cash | $ | 15,000 | $ | 5,000 | ||||||||||||
Accounts Receivable | 30,000 | 40,000 | ||||||||||||||
Inventory | 70,000 | 60,000 | ||||||||||||||
Depreciable Assets (net) | 325,000 | 225,000 | ||||||||||||||
Investment in Stallion Company | 195,000 | |||||||||||||||
Depreciation Expense | 25,000 | 15,000 | ||||||||||||||
Other Expenses | 105,000 | 75,000 | ||||||||||||||
Dividends Declared | 40,000 | 10,000 | ||||||||||||||
Accounts Payable | $ | 50,000 | $ | 40,000 | ||||||||||||
Notes Payable | 100,000 | 120,000 | ||||||||||||||
Common Stock | 200,000 | 100,000 | ||||||||||||||
Retained Earnings | 230,000 | 50,000 | ||||||||||||||
Sales | 200,000 | 120,000 | ||||||||||||||
Income from Stallion Company | 25,000 | |||||||||||||||
$ | 805,000 | $ | 805,000 | $ | 430,000 | $ | 430,000 | |||||||||
Pony uses the equity method in accounting for its investment in Stallion. Stallion declared and paid dividends on December 31, 20X5. Required: a. Prepare the consolidation entries needed as of December 31, 20X5, to complete a consolidation worksheet. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
b. Prepare a three-part consolidation worksheet as of December 31, 20X5. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)
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