Question
Pretzel Corporation acquired an 80% interest in Salt Corporation at a cost equal to 80% of the book value of Salts net assets several years
Pretzel Corporation acquired an 80% interest in Salt Corporation at a cost equal to 80% of the book value of Salts net assets several years ago. At the time of purchase, the fair value and book value of Salts assets and liabilities were equal. Pretzel purchases its entire inventory from Salt at 150% of Salts cost. During 2011, Salts sales to Pretzel were $190,000. Pretzels beginning and ending inventories for 2011 were $72,000 and $66,000, respectively. Income statement information for both companies for 2011 is as follows:
Pretzel Salt
Sales revenue 820,000 440,000
Investment income from Salt 145,600
Cost of goods sold (460,000) (165,000)
Expenses (120,000) (95,000)
Net income 385,600 180,000
Required: prepare a consolidated income statement for Pretzel Corporation and Subsidiary for 2011 and record the three eliminating entries.
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