Prime Company holds 80 percent of Suspect Company's stock, acquired on January 1, 20X2, for $182,000. On the acquisition date, the fair value of the noncontrolling interest was $45,500. Suspect reported retained earnings of $50,000 and had $100,000 of common stock outstanding. Prime uses the fully adjusted equity method in accounting for its investment in Suspect. Trial balance data for the two companies on December 31, 20X6, are as follows: Suspect Company Debit Credit $ 32,000 99,000 80,000 130,000 Item Cash & Accounts Receivable Inventory Land Buildings & Equipment Investment in Suspect Co. Cost of Goods Sold Depreciation and Amortization Expense Other Expenses Dividends Declared Accumulated Depreciation Accounts Payable Bonds Payable Common Stock Retained Earnings Sales Gain on Sale of Equipment Income from Suspect Co. Total Prime Company Debit Credit $ 113,000 264,000 85,000 480,000 204,520 174,000 24,000 16,000 30,000 $ 196,800 61,000 180,000 300,000 309,360 300,000 15,000 28,360 $1,390,520 $1,390,520 78,200 13,000 6,000 5,000 $ 39,000 19,000 55,000 100,000 60,200 170,000 $443,200 $443,200 Additional Information 1. At the date of combination, the book values and fair values of all separately identifiable assets and liabilities of Suspect were the same. At December 31, 20X6, the management of Prime reviewed the amount attributed to goodwill as a result of its purchase of Suspect stock and concluded an impairment loss of $20,475 should be recognized in 20X6 and shared proportionately between the controlling and noncontrolling shareholders. 2. On January 1, 20X5, Suspect sold land that had cost $10,000 to Prime for $22,500. 3. On January 1, 20X6, Prime sold to Suspect equipment that it had purchased for $82,500 on January 1, 20X1. The equipment has a total economic life of 15 years and was sold to Suspect for $70,000. Both companies use straight-line depreciation. 4. There was $7,000 of intercompany receivables and payables on December 31, 20X6. . 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 receivable/payable. E Record the entry to eliminate the gain on the sale of land. F Record the entry to eliminate the gain on the equipment and to correct the asset's basis. Answer is not complete. Debit Credit No Entry 1 77,500 Accounts Goodwill Investment in Suspect Co. NCI in NI of Suspect Co. 40,000 37,500 00 B 2 22,500 Goodwill impairment loss NCI in NA of Suspect Co. Income from Suspect Co. 4,500 18,000 3 7,000 Accounts payable Cash and accounts receivable 7,000 D 7,000 Accounts payable Cash and accounts receivable 7,000 E th No journal entry required F 6 15,000 Gain on sale Equipment 15,000 X G 7 NCI in NA of Suspect Co. Income from Suspect Co. Depreciation expense 300 X 1,200 X 1,500 Prime Company holds 80 percent of Suspect Company's stock, acquired on January 1, 20X2, for $182,000. On the acquisition date, the fair value of the noncontrolling interest was $45,500. Suspect reported retained earnings of $50,000 and had $100,000 of common stock outstanding. Prime uses the fully adjusted equity method in accounting for its investment in Suspect. Trial balance data for the two companies on December 31, 20X6, are as follows: Suspect Company Debit Credit $ 32,000 99,000 80,000 130,000 Item Cash & Accounts Receivable Inventory Land Buildings & Equipment Investment in Suspect Co. Cost of Goods Sold Depreciation and Amortization Expense Other Expenses Dividends Declared Accumulated Depreciation Accounts Payable Bonds Payable Common Stock Retained Earnings Sales Gain on Sale of Equipment Income from Suspect Co. Total Prime Company Debit Credit $ 113,000 264,000 85,000 480,000 204,520 174,000 24,000 16,000 30,000 $ 196,800 61,000 180,000 300,000 309,360 300,000 15,000 28,360 $1,390,520 $1,390,520 78,200 13,000 6,000 5,000 $ 39,000 19,000 55,000 100,000 60,200 170,000 $443,200 $443,200 Additional Information 1. At the date of combination, the book values and fair values of all separately identifiable assets and liabilities of Suspect were the same. At December 31, 20X6, the management of Prime reviewed the amount attributed to goodwill as a result of its purchase of Suspect stock and concluded an impairment loss of $20,475 should be recognized in 20X6 and shared proportionately between the controlling and noncontrolling shareholders. 2. On January 1, 20X5, Suspect sold land that had cost $10,000 to Prime for $22,500. 3. On January 1, 20X6, Prime sold to Suspect equipment that it had purchased for $82,500 on January 1, 20X1. The equipment has a total economic life of 15 years and was sold to Suspect for $70,000. Both companies use straight-line depreciation. 4. There was $7,000 of intercompany receivables and payables on December 31, 20X6. . 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 receivable/payable. E Record the entry to eliminate the gain on the sale of land. F Record the entry to eliminate the gain on the equipment and to correct the asset's basis. Answer is not complete. Debit Credit No Entry 1 77,500 Accounts Goodwill Investment in Suspect Co. NCI in NI of Suspect Co. 40,000 37,500 00 B 2 22,500 Goodwill impairment loss NCI in NA of Suspect Co. Income from Suspect Co. 4,500 18,000 3 7,000 Accounts payable Cash and accounts receivable 7,000 D 7,000 Accounts payable Cash and accounts receivable 7,000 E th No journal entry required F 6 15,000 Gain on sale Equipment 15,000 X G 7 NCI in NA of Suspect Co. Income from Suspect Co. Depreciation expense 300 X 1,200 X 1,500