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: Steak Company Debit Credit $ 10,000 70,000 110,000 400,000 Item Cash Accounts Receivable Inventory Buildings & Equipment Investment in Steak Company Cost of Goods Sold Depreciation Expense Other Expenses Dividends Declared Accumulated Depreciation Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-in Capital Retained Earnings Sales Other Income Income from Steak Company Total Prime Corporation Debit Credit $ 130,300 80,000 170,000 600,000 293,000 416,000 30,000 24,000 50,000 $ 310,000 100,000 300,000 202,000 20,000 18,000 25,000 200,000 $120,000 15,200 100,000 4,800 100,000 20,000 215,000 250,000 30,000 337,500 500,000 20,400 25,400 $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 Journal entry worksheet A B C D E F G Record Prime Corp.'s 80% share of Steak Co.'s 20X7 income. Note: Enter debits before credits. Event General Journal Debit Credit 1 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 Journal entry worksheet A B D E F G > Record Prime Corp.'s 80% share of Steak Co.'s 20x7 dividend. Note: Enter debits before credits. Event General Journal Debit Credit 2 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 Journal entry worksheet A B D E G > Record the amortization of the excess acquisition price. Note: Enter debits before credits. Event General Journal Debit Credit 3 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 Journal entry worksheet A B D E F G > Record the reversal of the deferred gross profit from downstream sales in 20x6. Note: Enter debits before credits. Event General Journal Debit Credit 4 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 Journal entry worksheet Record the elimination of the deferred gross profit from downstream sales in 20X7. Note: Enter debits before credits. Event General Journal Debit Credit 5 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 Journal entry worksheet B C D E F. G Record the reversal of the deferred gross profit from upstream sales in 20X6. Note: Enter debits before credits. Debit General Journal Event Credit 6 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 Journal entry worksheet Record the elimination of the deferred gross profit from upstream sales in 20x7. Note: Enter debits before credits. Event General Journal Debit Credit 7 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 A B D E F G > Record the basic consolidation entry. Note: Enter debits before credits. Entry Accounts Debit Credit 1 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 5 Record the amortized excess value reclassification entry. Not Enter debits before credits. Entry Accounts Debit Credit 2 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 excess value (differential) reclassification entry. Note: Enter debits before credits. Accounts Debit Entry Credit 3 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 optional accumulated depreciation consolidation entry. Note: Enter debits before credits. Entry Accounts Debit Credit 5 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 entry to reverse last year's deferral. Note: Enter debits before credits. Entry Accounts Debit Credit 6 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 deferral of this year's unrealized profits on inventory transfers. Note: Enter debits before credits. Entry Accounts Debit Credit 7 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 Corp Steak Co. DR CR Consolidated Income Statement Sales Other Income Less: COGS Less: Depreciation expense Less: Other Expenses Income from Steak Company Consolidated Net Income NCI in Net Income Controlling Interest in Net Income Statement of Retained Earnings Beginning Balance Net Income + Less: Dividends Declared Ending Balance Balance Sheet Cash Accounts Receivable Inventory Buildings & Equipment Less: Accumulated Depreciation Investment in Steak Company Total Assets Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-in Capital Retained Earnings NCI in NA of Steak Company Total Liabilities & Equity 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 Income to Controlling Interest Prime Corporation and Subsidiary Consolidated Balance Sheet Year Ended December 31, 20X7 Assets Total Current Assets Total Assets Liabilities Stockholders' Equity: Controlling Interest: Total Controlling Interest: Total Stockholders' Equity: Total Liabilities and Stockholders' Equity Prime Corporation and Subsidiary Consolidated Statement of Retained Earnings Year Ended December 31, 20X7 Retained Earnings, January 1, 20X7 Income to Controlling Interest, 20X7 Dividends Declared, 20X7 Retained Earnings, December 31, 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: Steak Company Debit Credit $ 10,000 70,000 110,000 400,000 Item Cash Accounts Receivable Inventory Buildings & Equipment Investment in Steak Company Cost of Goods Sold Depreciation Expense Other Expenses Dividends Declared Accumulated Depreciation Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-in Capital Retained Earnings Sales Other Income Income from Steak Company Total Prime Corporation Debit Credit $ 130,300 80,000 170,000 600,000 293,000 416,000 30,000 24,000 50,000 $ 310,000 100,000 300,000 202,000 20,000 18,000 25,000 200,000 $120,000 15,200 100,000 4,800 100,000 20,000 215,000 250,000 30,000 337,500 500,000 20,400 25,400 $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 Journal entry worksheet A B C D E F G Record Prime Corp.'s 80% share of Steak Co.'s 20X7 income. Note: Enter debits before credits. Event General Journal Debit Credit 1 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 Journal entry worksheet A B D E F G > Record Prime Corp.'s 80% share of Steak Co.'s 20x7 dividend. Note: Enter debits before credits. Event General Journal Debit Credit 2 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 Journal entry worksheet A B D E G > Record the amortization of the excess acquisition price. Note: Enter debits before credits. Event General Journal Debit Credit 3 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 Journal entry worksheet A B D E F G > Record the reversal of the deferred gross profit from downstream sales in 20x6. Note: Enter debits before credits. Event General Journal Debit Credit 4 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 Journal entry worksheet Record the elimination of the deferred gross profit from downstream sales in 20X7. Note: Enter debits before credits. Event General Journal Debit Credit 5 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 Journal entry worksheet B C D E F. G Record the reversal of the deferred gross profit from upstream sales in 20X6. Note: Enter debits before credits. Debit General Journal Event Credit 6 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 Journal entry worksheet Record the elimination of the deferred gross profit from upstream sales in 20x7. Note: Enter debits before credits. Event General Journal Debit Credit 7 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 A B D E F G > Record the basic consolidation entry. Note: Enter debits before credits. Entry Accounts Debit Credit 1 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 5 Record the amortized excess value reclassification entry. Not Enter debits before credits. Entry Accounts Debit Credit 2 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 excess value (differential) reclassification entry. Note: Enter debits before credits. Accounts Debit Entry Credit 3 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 optional accumulated depreciation consolidation entry. Note: Enter debits before credits. Entry Accounts Debit Credit 5 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 entry to reverse last year's deferral. Note: Enter debits before credits. Entry Accounts Debit Credit 6 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 deferral of this year's unrealized profits on inventory transfers. Note: Enter debits before credits. Entry Accounts Debit Credit 7 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 Corp Steak Co. DR CR Consolidated Income Statement Sales Other Income Less: COGS Less: Depreciation expense Less: Other Expenses Income from Steak Company Consolidated Net Income NCI in Net Income Controlling Interest in Net Income Statement of Retained Earnings Beginning Balance Net Income + Less: Dividends Declared Ending Balance Balance Sheet Cash Accounts Receivable Inventory Buildings & Equipment Less: Accumulated Depreciation Investment in Steak Company Total Assets Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-in Capital Retained Earnings NCI in NA of Steak Company Total Liabilities & Equity 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 Income to Controlling Interest Prime Corporation and Subsidiary Consolidated Balance Sheet Year Ended December 31, 20X7 Assets Total Current Assets Total Assets Liabilities Stockholders' Equity: Controlling Interest: Total Controlling Interest: Total Stockholders' Equity: Total Liabilities and Stockholders' Equity Prime Corporation and Subsidiary Consolidated Statement of Retained Earnings Year Ended December 31, 20X7 Retained Earnings, January 1, 20X7 Income to Controlling Interest, 20X7 Dividends Declared, 20X7 Retained Earnings, December 31, 20X7