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5-On January 1, 2020, Wondersome Company acquired a 70% interest in Philmore Company for a purchase...

5-On January 1, 2020, Wondersome Company acquired a 70% interest in Philmore Company for a purchase price that was $240,000 over the book value of the Philmore’s Stockholders’ Equity on the acquisition date. Wondersome uses the cost method to account for its investment in Philmore. On the date of acquisition, Philmore’s retained earnings balance was $350,000. Wondersome assigned the acquisition-date AAP as follows:

AAP Items

Initial Fair Value

Useful Life (years)

PPE, net. 90,000 .....20

Patent 150,000.....,10


$350,000


Philmore sells inventory to Wondersome (upstream) which includes that inventory in products that it, ultimately, sells to customers outside of the controlled group. You have compiled the following data for the years ending 2022 and 2023:


2022.....2023

Transfer price for inventory sale

$94,500.... $70,000

Cost of goods sold

-64,500.....,,-45,000

Gross profit

$30,000.....$ 25,000

% inventory remaining

30%......20%

Gross profit deferred

$9,000....$5,000




EOY Receivable/Payable

$32,000....$29,500

The inventory not remaining at the end of the year has been sold outside of the controlled group.

The parent and the subsidiary report the following financial statements at December 31, 2023:

Income Statement


Wondersome.....Philmore

Sales

$2,400,000....$602,400

Cost of goods sold

-1,580,000.....-465,398

Gross Profit

820,000.... 137,002

Income (loss) from subsidiary

10,500


Operating expenses

-711,200...-56,000

Net income

$119,300.....$81,002


Statement of Retained Earnings


Wondersome.....Philmore

BOY Retained Earnings

$3,360,350...., $608,000

Net income

119,300....81,002

Dividends

-85,000.....-15,000

EOY Retained Earnings

$3,394,650.....$674,002


Balance Sheet


Wondersome.....Philmore

Assets:



Cash

$450,000.....$84,700

Accounts receivable

425,000......113,200

Inventory

654,000.....142,100

Investment in subsidiary
634,550


PPE, net

4,432,100......1,000,002


$6,595,650...... $1,340,002




Liabilities and Stockholders’ Equity:



Current Liabilities

$505,900..... $99,500

Long-term Liabilities

703,500.....250,000

Common Stock

402,000.......75,300

APIC

1,589,600......241,200

Retained Earnings

3,394,650 .....674,002


$6,595,650 ........$1,340,002

Required:
a. Compute the EOY noncontrolling interest equity balance
b. Prepare the consolidation journal entries.

Solutions

Expert Solution

Parent purchase price 634550
NCI 271950
Purchase consideration 906500
Net asset book value 666500
240000
AAP
Aap items Initail Fair value Useful life Depre/amort
PPE, net 90000 20 4500
Patent 150000 10 15000
240000 19500
Intercomapny transactions
2022 2023
Sale price 94500 70000
COGS 64500 45000
Gross profit 30000 25000
% in inventory 30% 20%
Gross profit deferred 9000 5000
Journal entry
Retained earnings 9000
COGS 5000
To inventory 14000
Accounts payable 29500
Cash 2500
To accounts receivable 32000
NCI
Beginning balance 271950
Changes in retained earnings 2020 to year 2022 77400 =(608000-350000)*0.30
Intercompany sales affecting retained earnings -2700 =9000*0.30
Share in AAP 2020 to 2022 -17550 =(19500*3)*0.3
Share in income 2023 16950.6 =(81002-19500-5000)*0.3
Dividends -4500 =15000*0.3
Balance of NCI 341550.6
Consolidation entries
Income from Subsidiary 10500
To dividends 10500
Common stock 75300
APIC 241200
Retained earnings 350000
To investment in Subsidiary 466550
To NCI in NA 199950
Patents 90000
PPE 150000
To investment in Subsidiary 168000
To NCI in NA 72000
Retained earnings 9000
COGS 5000
To inventory 14000
Accounts payable 29500
Cash 2500
To accounts receivable 32000
NCI share in income 16950.6
To NCI in NA 16950.6
NCI in NA 4500
To dividends 4500
Retained earnings 57150
To NCI in NA 57150
Wondersome Philmore Dr Cr Consolidated
Sales 2400000 602400 3002400
COGS 1580000 465398 5000 2050398
Gross profit 820000 137002 957002
income from subsidiary 10500 10500 0
operating expense 711200 56000 19500 786700
Net income 119300 81002 170302
NCI 16950.6
153351.4
Retained earnings
Beginning of year 3360350 608000 473950 3494400
Net income 119300 81002 41450.6 158851.4
Dividends 85000 15000 15000 85000
End balance 3394650 674002 3568251
Balancesheet
Cash 450000 84700 2500 532200
accounts receivable 425000 113200 29500 508700
inventory 654000 142100 14000 782100
Investment in subsidiary 634550 0 634550 0
PPE,net 4432100 1000002 90000 18000 5504102
Patent 150000 60000 90000
Total 6595650 1340002 7417102
Liabilities and stockholders' equity
Current liabilities 505900 99500 32000 573400
Long-term liabilities 703500 250000 953500
Common stock 402000 75300 75300 402000
APIC 1589600 241200 241200 1589600
Retaine earnings 3394650 674002 511600.6 3557051
NCI 341550.6 341550.6
6595650 1340002 7417102

ekkarill92 answered 1 year ago
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