This is a case of downstream sales, so it's a little easier than the last example.

Son is a 90%-owned subsidiary of Pop, acquired for $94,500 cash on 7/1/16, when Sun's net assets consisted of $100,000 common stock and $5,000 retained earnings. The cost of Pop's 90% interest in Son was equal to book value and fair value of the interest acquired ($105,000 * 90%), and accordingly, no allocation to identifiable and unidentifiable assets was needed.

Pop sells inventory items to Son on a regular basis, and the intercompany transaction data for 2019 are as follows:

Sales to Son in 2019 $20,000

CGS (for intercompany sales)15,000

Unrealized profit in Son's inventory at 12/31/18 (sold during 2019)2,000

Unrealized profit in Son's inventory at 12/31/192,500

Son's accounts payable to Pop at 12/31/19 10,000

Pop's Equity Method Accounting

At 12/31/18, Pop's Investment in Son had a balance of $128,500. This balance consisted of Pop's 90% equity in Son's $145,000 net assets on that date less $2,000 unrealized profit in Son's 12/31/18, inventory.

During 2019, Pop made the following entries for its investment in Son under the equity method:

Cash (+A) 9,000

Investment in Son (-A) 9,000

To record dividends from Son ($10,000 * 90%)

Investment in Son (+A) 26,500

Income from Son (R, +SE) 26,500

To record income from Son for 2019 computed as follows:

Equity in Son's net income ($30,000 * 90%) $27,000

Add: 2018 inventory profit recognized in 20192,000

Less: 2019 inventory profit deferred at year-end-2,500

$26,500

The intercompany sales that led to the unrealized inventory profits were downstream, so we recognize the full amount of profit deferred in 2018 in 2019, and the full amount of the unrealized inventory profit originating in 2019 is deferred at 12/31/19. Pop's Investment in Son increased from $128,500 at 1/1/19, to $146,000 at 12/31/19, the entire change consisting of $26,500 income less $9,000 dividends for the year.

Pop and Son Consolidation Workpaper for the Year Ended 12/31/19 (in thousands)

Eliminations

Pop

Son

DR

CR

Consolidated

Sales

$1,000

$300

Income from Son

26.5

CGS

550

200

Other expenses

350

70

Consol. NI

Noncontrol. share

Control. share

$126.5

$30

R/E - Pop

$194

R/E - Son

$45

+ Control. share

126.5

30

Dividends

50

10

R/E - 12/31

$270.5

$65

Cash

$30

$5

Acc. Receiv.

70

20

Inventory

90

45

Other current assets

64

10

PP&E - net

800

120

Investment in Son

146

$1,200

$200

Acc. Pay.

$80

$15

Other liabil.

49.5

20

Comm. stock

800

100

R/E

270.5

65

$1,200

$200

Noncontrol. Inter. - 1/1

Noncontrol. Inter. - 12/31

Required: Prepare the needed eliminations and complete the consolidation workpaper for 12/31/19.