Rossman Corporation holds 75 percent of the common stock of Schmid Distributors Inc., purchased on December 31, 20X1, for $2,160,000. At the date of acquisition, Schmid reported common stock with a par value of $920,000, additional paid-in capital of $1,270,000, and retained earnings of $550,000. The fair value of the noncontrolling interest at acquisition was $720,000. The differential at acquisition was attributable to the following items:

Inventory (sold in 20X2)	$	35,000
Land		49,000
Goodwill		56,000
Total Differential	$	140,000

During 20X2, Rossman sold a plot of land that it had purchased several years before to Schmid at a gain of $19,600; Schmid continues to hold the land. In 20X6, Rossman and Schmid entered into a five-year contract under which Rossman provides management consulting services to Schmid on a continuing basis; Schmid pays Rossman a fixed fee of $84,000 per year for these services. At December 31, 20X8, Schmid owed Rossman $21,000 as the final 20X8 quarterly payment under the contract.

On January 2, 20X8, Rossman paid $260,000 to Schmid to purchase equipment that Schmid was then carrying at $300,000. Schmid had purchased that equipment on December 27, 20X2, for $450,000. The equipment is expected to have a total 15-year life and no salvage value. The amount of the differential assigned to goodwill has not been impaired.

At December 31, 20X8, trial balances for Rossman and Schmid appeared as follows:

	Rossman Corporation							Schmid Distributors Inc.
Item	Debit			Credit				Debit			Credit
Cash	$	50,700						$	38,000
Current Receivables		108,800							96,400
Inventory		296,000							223,900
Investment in Schmid Stock		2,822,900
Land		418,000							1,212,000
Buildings & Equipment		2,500,000							3,000,000
Cost of Goods Sold		2,193,000							521,000
Depreciation & Amortization		200,000							77,000
Other Expenses		1,375,000							215,000
Dividends Declared		44,000							14,000
Accumulated Depreciation				$	1,093,000						$	400,000
Current Payables					87,200							323,300
Bonds Payable					935,000							198,000
Common Stock					98,000							920,000
Additional Paid-in Capital					1,256,000							1,270,000
Retained Earnings, January 1					1,457,800							1,320,000
Sales					4,847,650							1,000,000
Other Income or Loss					92,000				34,000
Income from Schmid					141,750
Total	$	10,008,400		$	10,008,400			$	5,431,300		$	5,431,300

As of December 31, 20X8, Schmid had declared but not yet paid its fourth-quarter dividend of $5,000. Both companies use straight-line depreciation and amortization. Rossman uses the fully adjusted equity method to account for its investment in Schmid.

Required:

a.	Compute the amount of the differential as of January 1, 20X8.

b.	Verify the balance in Rossmans Investment in Schmid Stock account as of December 31, 20X8.

c.	Present all consolidation entries that would appear in a three-part consolidation worksheet as of December 31, 20X8. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to nearest whole dollar amount.)

d.

Prepare and complete a three-part worksheet for the preparation of consolidated financial statements for 20X8. (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.)

rev: 12_17_2015_QC_CS-35590, 12_21_2015_QC_CS-35590

References

eBook & Resources

Consolidating Entries