Tyler Manufacturing purchased 60 percent of the ownership of Brown Corporation stock on January 1, 20X1, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 40 percent of the book value of Brown Corporation. Tyler also purchased $50,000 of Brown bonds at par value on December 31, 20X3. Brown sold the bonds on January 1, 20X1, at 120; they have a stated interest rate of 12 percent. Interest is paid semiannually on June 30 and December 31. Assume Tyler uses the fully adjusted equity method.

On December 31, 20X1, Brown sold a building with a remaining life of 15 years to Tyler for$30,000. Brown had purchased the building 10 years earlier for $40,000. It is being depreciated based on a 25-year expected life.

Trial balances for the two companies on December 31 20X3, are as follows:

Required

a. Prepare a consolidation worksheet for 20X3 in good form.

b. Prepare a consolidated balance sheet, income statement, and statement of changes in retained earnings for 20X3.

Transcribed Image Text:

Tyler Manufacturing Debit Brown Corporation Item Credit Debit Credit Cash Accounts Receivable Inventory Investment in Brown Bonds Investment in Brown Stock $ 68,000 100,000 120,000 50,000 103,080 S 55,000 110,000 5 Tyler Manufacturing rown Corporation Debit ltem Credit Debit Credit Depreciable Assets (net) Interest Expense Operating Expenses Dividends Declared Accounts Payable Bonds Payable Bond Premium 2 20,000 302,200 40,000 150,000 10,000 94,200 200,000 S 52,000 200,000 28,000 100,000 50,000 200,000 Retained Earnings Sales Income from Brown Corp. 300,000 146,640 400,000 22,440 $1,163,280 $1,163,280 $630,000 $630,000