Prime Corporation acquired 80 percent of Steak Company's voting shares on January 1, 20X4, for $280,000 in cash and marketable securities. At that date, the noncontrolling interest had a fair value of $70,000 and Steak reported net assets of $300,000. Assume Prime uses the fully adjusted equity method. Trial balances for the two companies on December 31, 20X7, are as follows: Item Prime Corporation Steak Company Debit Credit Debit Credit Cash $ 130,300 $ 10,000 Accounts Receivable 80,000 70,000 Inventory 170,000 110,000 Buildings & Equipment 600,000 400,000 Investment in Steak Company 293,000 Cost of Goods Sold 416,000 202,000 Depreciation Expense 30,000 20,000 Other Expenses 24,000 18,000 Dividends Declared 50,000 25,000 Accumulated Depreciation $ 310,000 $120,000 Accounts Payable 100,000 15,200 Bonds Payable 300,000 100,000 Bond Premium 4,800 Common Stock 200,000 100,000 Additional Paid- in Capital 20,000 Retained Earnings 337,500 215,000 Sales 500,000 250,000 Other Income 20,400 30,000 Income from Steak Company 25,400 Total $1,793,300 $1,793,300 $855,000 $855,000 Additional Information 1. The full amount of the differential at acquisition was assigned to buildings and equipment with a remaining 10-year economic life. 2. Prime and Steak regularly purchase inventory from each other. During 20X6, Steak Company sold inventory costing $40,000 to Prime Corporation for $60,000, and Prime resold 60 percent of the inventory in 20X6 and 40 percent in 20X7. Also in 20X6, Prime sold inventory costing $20,000 to Steak for $26,000. Steak resold two-thirds of the inventory in 20X6 and one-third in 20x7. 3. During 20X7, Steak sold inventory costing $30,000 to Prime for $45,000, and Prime sold items purchased for $9,000 to Steak for $12,000. Before the end of the year, Prime resold one-third of the inventory it purchased from Steak in 20x7. Steak continues to hold all the units purchased from Prime during 20x7. 4. Steak owes Prime $10,000 on account on December 31, 20x7. 5. Assume that both companies use straight-line depreciation and that no property, plant, and equipment has been purchased since the acquisition. Required: a. Prepare the 20x7 journal entries recorded on Prime's books related to its investment in Steak if Prime uses the equity method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list X > A Record Prime Corp.'s 80% share of Steak Co.'s 20X7 income. B Record Prime Corp.'s 80% share of Steak Co.'s 20X7 dividend. X7 Record the amortization of the excess acquisition price. Credit Record the reversal of the deferred gross profit from downstream sales in 20X6. Record the elimination of the deferred gross profit from downstream sales in 20x7. Note : = journal entry has been entered Record entry View general journal Clear entry b. Prepare all consolidation entries needed to complete a consolidation worksheet as of December 31, 20x7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) view transaction list Consolidation Worksheet Entries Record the amortized excess value reclassification entry. Note: Enter debits before credits. Accounts Debit Credit Entry 2 - Record entry Clear entry view consolidation entries c. Prepare a three-part consolidation worksheet as of December 31, 20X7. (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.) PRIME CORPORATION & SUBSIDIARY Consolidated Financial Statement Worksheet For 20X7 Consolidation Entries Prime Steak Co. DR CR Consolidated Corp. Income Statement Sales $ 500,000 $ 250,000 $ 57,000 $ 693,000 Other Income 20,400 30,000 50,400 Less: COGS Less: Depreciation expense Less: Other Expenses Income from Steak Company Consolidated Net Income 520,400 280,000 57,000 0 743,400 NCI in Net Income Controlling Interest in Net Income $ 520,400 $ 280,000 $ 57,000 $ 0 $ 743,400 Statement of Retained Earnings Beginning Balance Net Income 520,400 280,000 57,000 743,400 Less: Dividends Declared Ending Balance $ 520,400 $ 280,000 $ 57,000 $ $ 743,400 Balance Sheet Cash Accounts Receivable Inventory Buildings & Equipment Less: Accumulated Depreciation Investment in Steak Company Total Assets $ 0 $ $ 0 $ 0 $ 0 Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-in Capital Retained Earnings NCI in NA of Steak Company Total Liabilities & Equity $ 0 $ 0 $ o $ 0 $ 0 d. Prepare a consolidated income statement, balance sheet, and retained earnings statement for 20x7. Prime Corporation and Subsidiary Consolidated Income Statement Year Ended December 31, 20X7 0 0 0 Income to Controlling Interest $ 0 Prime Corporation and Subsidiary Consolidated Balance Sheet Year Ended December 31, 20X7 Assets Total Current Assets $ 0 0 $ 0 Total Assets Liabilities 0 Stockholders' Equity: Controlling Interest: Total Controlling Interest: $ 0 0 Total Stockholders' Equity: Total Liabilities and Stockholders' Equity $ 0 Prime Corporation and Subsidiary Consolidated Statement of Retained Earnings Year Ended December 31, 20X7 Retained Earnings, January 1, 20X7 Income to Controlling Interest, 20X7 $ 0 Dividends Declared, 20X7 Retained Earnings, December 31, $ 0 20X7 Prime Corporation acquired 80 percent of Steak Company's voting shares on January 1, 20X4, for $280,000 in cash and marketable securities. At that date, the noncontrolling interest had a fair value of $70,000 and Steak reported net assets of $300,000. Assume Prime uses the fully adjusted equity method. Trial balances for the two companies on December 31, 20X7, are as follows: Item Prime Corporation Steak Company Debit Credit Debit Credit Cash $ 130,300 $ 10,000 Accounts Receivable 80,000 70,000 Inventory 170,000 110,000 Buildings & Equipment 600,000 400,000 Investment in Steak Company 293,000 Cost of Goods Sold 416,000 202,000 Depreciation Expense 30,000 20,000 Other Expenses 24,000 18,000 Dividends Declared 50,000 25,000 Accumulated Depreciation $ 310,000 $120,000 Accounts Payable 100,000 15,200 Bonds Payable 300,000 100,000 Bond Premium 4,800 Common Stock 200,000 100,000 Additional Paid- in Capital 20,000 Retained Earnings 337,500 215,000 Sales 500,000 250,000 Other Income 20,400 30,000 Income from Steak Company 25,400 Total $1,793,300 $1,793,300 $855,000 $855,000 Additional Information 1. The full amount of the differential at acquisition was assigned to buildings and equipment with a remaining 10-year economic life. 2. Prime and Steak regularly purchase inventory from each other. During 20X6, Steak Company sold inventory costing $40,000 to Prime Corporation for $60,000, and Prime resold 60 percent of the inventory in 20X6 and 40 percent in 20X7. Also in 20X6, Prime sold inventory costing $20,000 to Steak for $26,000. Steak resold two-thirds of the inventory in 20X6 and one-third in 20x7. 3. During 20X7, Steak sold inventory costing $30,000 to Prime for $45,000, and Prime sold items purchased for $9,000 to Steak for $12,000. Before the end of the year, Prime resold one-third of the inventory it purchased from Steak in 20x7. Steak continues to hold all the units purchased from Prime during 20x7. 4. Steak owes Prime $10,000 on account on December 31, 20x7. 5. Assume that both companies use straight-line depreciation and that no property, plant, and equipment has been purchased since the acquisition. Required: a. Prepare the 20x7 journal entries recorded on Prime's books related to its investment in Steak if Prime uses the equity method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list X > A Record Prime Corp.'s 80% share of Steak Co.'s 20X7 income. B Record Prime Corp.'s 80% share of Steak Co.'s 20X7 dividend. X7 Record the amortization of the excess acquisition price. Credit Record the reversal of the deferred gross profit from downstream sales in 20X6. Record the elimination of the deferred gross profit from downstream sales in 20x7. Note : = journal entry has been entered Record entry View general journal Clear entry b. Prepare all consolidation entries needed to complete a consolidation worksheet as of December 31, 20x7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) view transaction list Consolidation Worksheet Entries Record the amortized excess value reclassification entry. Note: Enter debits before credits. Accounts Debit Credit Entry 2 - Record entry Clear entry view consolidation entries c. Prepare a three-part consolidation worksheet as of December 31, 20X7. (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.) PRIME CORPORATION & SUBSIDIARY Consolidated Financial Statement Worksheet For 20X7 Consolidation Entries Prime Steak Co. DR CR Consolidated Corp. Income Statement Sales $ 500,000 $ 250,000 $ 57,000 $ 693,000 Other Income 20,400 30,000 50,400 Less: COGS Less: Depreciation expense Less: Other Expenses Income from Steak Company Consolidated Net Income 520,400 280,000 57,000 0 743,400 NCI in Net Income Controlling Interest in Net Income $ 520,400 $ 280,000 $ 57,000 $ 0 $ 743,400 Statement of Retained Earnings Beginning Balance Net Income 520,400 280,000 57,000 743,400 Less: Dividends Declared Ending Balance $ 520,400 $ 280,000 $ 57,000 $ $ 743,400 Balance Sheet Cash Accounts Receivable Inventory Buildings & Equipment Less: Accumulated Depreciation Investment in Steak Company Total Assets $ 0 $ $ 0 $ 0 $ 0 Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-in Capital Retained Earnings NCI in NA of Steak Company Total Liabilities & Equity $ 0 $ 0 $ o $ 0 $ 0 d. Prepare a consolidated income statement, balance sheet, and retained earnings statement for 20x7. Prime Corporation and Subsidiary Consolidated Income Statement Year Ended December 31, 20X7 0 0 0 Income to Controlling Interest $ 0 Prime Corporation and Subsidiary Consolidated Balance Sheet Year Ended December 31, 20X7 Assets Total Current Assets $ 0 0 $ 0 Total Assets Liabilities 0 Stockholders' Equity: Controlling Interest: Total Controlling Interest: $ 0 0 Total Stockholders' Equity: Total Liabilities and Stockholders' Equity $ 0 Prime Corporation and Subsidiary Consolidated Statement of Retained Earnings Year Ended December 31, 20X7 Retained Earnings, January 1, 20X7 Income to Controlling Interest, 20X7 $ 0 Dividends Declared, 20X7 Retained Earnings, December 31, $ 0 20X7