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On January 1, 2020, Pantop Corporation acquired 85% of the outstanding common stock of Sunny Company...

  1. On January 1, 2020, Pantop Corporation acquired 85% of the outstanding common stock of Sunny Company for $527,000. There was no control premium.

The following information about Sunny Company on January 1, 2020 was available:

Book value

Fair value

Cash

193,000

193,000

Inventory

40,000

39,400

Building

180,000

200,000

            Total

413,000

432,400

Accounts Payable

    3,000

    3,000

Common Stock

200,000

Add. Paid-in Capital

110,000

Retained Earnings

100,000

                    Total

413,000

Pantop uses the complete equity method to account for its investment in Sunny. During 2020, Sunny had a net income of $80,000. The remaining useful life of the building was five years with no salvage value. Sunny uses straight line depreciation. Sunny’s cost of goods sold (FIFO) was $70,000 in 2020. On December 23, 2020, Sunny declared and paid $48,000 cash dividend to its shareholders. Goodwill was unimpaired as of December 31, 2020.

(i) Prepare journal entries for Pantop to record under the complete equity method of accounting the operating results of Sunny in 2020.

(ii) Prepare the working paper eliminating entries C, E, R, O and N (in journal entry format) for Pantop Corporation and subsidiary for the year ended December 31, 2020.

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ekkarill92 answered 2 years ago
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