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Prime Corporation acquired 80 percent of Steak Companys voting shares on January 1, 20X4, for $280,000 in cash and marketable securities. At that date, the
Prime Corporation acquired 80 percent of Steak Companys voting shares on January 1, 20X4, for $280,000 in cash and marketable securities. At that date, the non-controlling 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 and 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
- The full amount of the differential at acquisition was assigned to buildings and equipment with a remaining 10-year economic life.
- 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.
- 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.
- Steak owes Prime $10,000 on account on December 31, 20X7.
- Assume that both companies use straight-line depreciation and that no property, plant, and equipment has been purchased since the acquisition.
Required:
d. Prepare a consolidated income statement, balance sheet, and retained earnings statement for 20X7.
d. Prepare a consolidated income statement, balance sheet, and retained earnings statement for 207. \begin{tabular}{|l|r|} \hline \multicolumn{2}{|c|}{ Prime Corporation and Subsidiary } \\ Consolidated Statement of Retained Earnings \\ \hline \multicolumn{2}{|c|}{ Year Ended December 31, 20X7 } \\ \hline Retained Earnings, January 1, 20X7 \\ \hline Income to Controlling Interest, 20X7 \\ \hline & \\ \hline & $ \\ \hline Dividends Declared, 20X7 & \\ \hline Retained Earnings, December 31, 20X7 & $ \\ \hline \end{tabular}
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