QUESTION Purple Company acquired 80 percent of Silk Company's outstanding common stock for $56,000 on January 1, 2020, equals to the book value of Silk's net assets. Adjusted trial balance data for Purple and Silk as of December 31, 2020, are as follows (all amounts are in dollars): Purple Company Silk Company DR CR DR CR Cash Accounts Receivable $10,500 22,500 7,600 Inventory Investment in Silk Land 27,700 $15,000 19,860 22,000 68,240 22,000 87,500 32,500 6,700 25,600 8,200 Buildings and equipment Cost of Goods Sold 58,000 35,000 4,000 17,500 3,200 Depreciation Expense Selling and Administrative Expense Dividends Declared Accumulated Depreciation Accounts Payable Bonds Payable Common Stock Retained Earnings Sales $46,500 29,300 $17,000 14,000 20,000 10,000 85,000 40,000 32,000 30,000 75,000 80,000 Income from Silk 14,800 Total $307,600 $307,600 $186,000 $186,000 a) Prepare the journal entries related to the investment in Silk Company during 2020 (15 points). b) Prepare Book Value calculation table (10 points) c) Prepare basic consolidation entry (28 points). d) Prepare accumulated depreciation consolidation entry (10 points). e) Prepare a consolidation worksheet for 2020 in good form (30 points). f) Prepare a consolidated balance sheet as of December 31 2020 (7 points) SOLUTION Equity method journal entries related to the investment ACCOUNT TITLE Debit Credit Book Value Calculations NCI (20%) Parent's Investment (80%) Common Stock Retained Earnings Basic Consolidation entry ACCOUNT TITLE Debit Credit Accumulated Depreciation Consolidation Entry ACCOUNT TITLE Debit Credit Consolidation worksheet Elimination Entries Income Statement Purple Silk Consolidated DR CR Sales Less: COGS Less: Depreciation Expense Less: Other Expenses Income from Silk Consolidated Net Income NCI in Net income of Silk Controlling Interest in Net Income Statement of Retained Earnings Beginning Balance Net Income Less: Dividends Declared Ending Balance Balance Sheet Assets: Cash Accounts Receivable Inventory Investment in Silk Land Buildings & Equipment Less: Accumulated Depreciation Total Assets Liabilities and Equity: Accounts Payable Bonds Payable Common Stock Retained Earnings NCI in Net assets of Silk Total Liabilities & Equity 4 of 5