Problem 1

Assume that during 2009, an 80% owned subsidiary sells land that originally cost $100,000 to its parent for a sale price of $130,000. The parent holds the land until it sells it to an unaffiliated company on December 31, 2013.

Prepare the consolidation entry required in 2009.

Prepare the consolation entry required at the end of each year 2010 through 2012

Assume that the parent re-sells the land outside the consolidated group for $190,000 on December 31, 2013. Prepare the consolidation entry for 2013

What will be the amount of gain reported in the consolidated income statement in 2013

Problem 2

Pico acquired 90% of Salsas outstanding shares on January 2016 for $342,000 in cash. On the date, the non-controlling interest had a fair value of $38,000 and Salsas common stock and retained earnings accounts were $150,000 and $176,000, respectively. Salsa owned a building with nine-year remaining life that was undervalued by $18,000. Any remaining excess cost was attributable to unpatented technology having a six-year life.

Salsa sells inventory to Pico as follows:

Year Cost to Salsa Transfer Price to Pico Inventory remaining

at year end (at transfer price)

2016 $69,000 $115,000 $25,000

2017 $81,000 $135,000 $37,500

2018 $92,800 $160,000 $50,000

At December 31, 2018, Pico owes Salas $16,000 for inventory it purchased during the period. Financials as of December 31, 2018 are attached.

Prepare the elimination entries.

Pico Salsa

Sales (860,000) (366,000)

0Cost of Goods Sold 515,000 209,000

Expenses 185,000 67,000

Equity in subsidiary income (68,000) 0

___________ _____________

Net income (230,000) (90,000)

Retained Earnings 1/1/18 (488,000) (278,000)

Net income (230,000) (90,000)

Dividends 136,000 27,000

___________ ______________

Retained Earnings 12/31/18 (582,000) (341,000)

Cash and receivables 146,000 98,000

Inventory 255,000 136,000

Investment in Salsa 450,000 0

Land, Buildings and equipment, net 964,000 328,000

__________ ______________

Total Assets 1,815,000 562,000

Liability (718,000) (71,000)

Common Stock (515,000) (150,000)

Retained Earnings 12/31/18 (582,000) (341,000)

____________ _____________

Total liabilities and equity (1,815,000) (562,000)