Question
Pop Corporation acquired 70 percent of Soda Company's voting common shares on January 1, 20X2, for $118,300. At that date, the noncontrolling interest had a
Pop Corporation acquired 70 percent of Soda Company's voting common shares on January 1, 20X2, for $118,300. At that date, the noncontrolling interest had a fair value of $50,700 and Soda reported $70,000 of common stock outstanding and retained earnings of $31,000. The differential is assigned to buildings and equipment, which had a fair value $24,000 higher than book value and a remaining 10-year life, and to patents, which had a fair value $44,000 higher than book value and a remaining life of five years at the date of the business combination. Trial balances for the companies as of December 31, 20X3, are as follows:
Pop Corporation | Soda Company | |||||||||||||||
Item | Debit | Credit | Debit | Credit | ||||||||||||
Cash & Accounts Receivable | $ | 19,400 | $ | 25,600 | ||||||||||||
Inventory | 169,000 | 39,000 | ||||||||||||||
Land | 84,000 | 44,000 | ||||||||||||||
Buildings & Equipment | 380,000 | 264,000 | ||||||||||||||
Investment in Soda Company | 119,280 | |||||||||||||||
Cost of Goods Sold | 190,000 | 83,800 | ||||||||||||||
Depreciation Expense | 25,000 | 20,000 | ||||||||||||||
Interest Expense | 20,000 | 9,200 | ||||||||||||||
Dividends Declared | 34,000 | 19,000 | ||||||||||||||
Accumulated Depreciation | $ | 144,000 | $ | 85,000 | ||||||||||||
Accounts Payable | 96,400 | 39,000 | ||||||||||||||
Bonds Payable | 255,160 | 99,000 | ||||||||||||||
Bond Premium | 2,600 | |||||||||||||||
Common Stock | 124,000 | 70,000 | ||||||||||||||
Retained Earnings | 131,900 | 64,000 | ||||||||||||||
Sales | 264,000 | 145,000 | ||||||||||||||
Other Income | 13,600 | |||||||||||||||
Income from Soda Company | 11,620 | |||||||||||||||
$ | 1,040,680 | $ | 1,040,680 | $ | 504,600 | $ | 504,600
|
|
On December 31, 20X2, Soda purchased inventory for $27,000 and sold it to Pop for $45,000. Pop resold $28,000 of the inventory (i.e., $28,000 of the $45,000 acquired from Soda) during 20X3 and had the remaining balance in inventory at December 31, 20X3. During 20X3, Soda sold inventory purchased for $54,000 to Pop for $90,000, and Pop resold all but $26,000 of its purchase. On March 10, 20X3, Pop sold inventory purchased for $14,000 to Soda for $28,000. Soda sold all but $7,000 of the inventory prior to December 31, 20X3. Assume Pop uses the fully adjusted equity method, that both companies use straight-line depreciation, and that no property, plant, and equipment has been purchased since the acquisition. Required: a. Prepare all consolidation entries needed to prepare a full set of consolidated financial statements at December 31, 20X3, for Pop and Soda.
b. Prepare a three-part consolidation worksheet for 20X3.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started