Question

On January 1, 2018, Sledge had common stock of $290,000 and retained earnings of $430,000. During that year, Sledge reported sales of $300,000, cost of goods sold of $155,000, and operating expenses of $57,000.

On January 1, 2016, Percy, Inc., acquired 80 percent of Sledge's outstanding voting stock. At that date, $77,000 of the acquisition-date fair value was assigned to unrecorded contracts (with a 20-year life) and $37,000 to an undervalued building (with a 10-year remaining life).

In 2017, Sledge sold inventory costing $20,800 to Percy for $32,000. Of this merchandise, Percy continued to hold $6,000 at year-end. During 2018, Sledge transferred inventory costing $20,350 to Percy for $37,000. Percy still held half of these items at year-end.

On January 1, 2017, Percy sold equipment to Sledge for $20,500. This asset originally cost $33,000 but had a January 1, 2017, book value of $12,400. At the time of transfer, the equipment's remaining life was estimated to be five years.

Percy has properly applied the equity method to the investment in Sledge.

1. Prepare worksheet entries to consolidate these two companies as of December 31, 2018. (*G, *TA, S, A, I, E, TI, G, ED)
2. Compute the net income attributable to the noncontrolling interest for 2018.

Answer 1

1. Retained Earnings Dr. 2100

To COGS 2100

[6000 - (6000 * 20800/32000)]

2. Equipemt Dr. 12500

Investment in Sledge Dr. 6480

To Accumulated Depr. 18980

Cost price	Sale price	Profit from cost	Book Value	Profit from Book Value	Acquistion	Holding share	Total accumulated Depr
33000	20500	12500	12400	8100	80%	6480	18980

3. Common Stock (Sledge) Dr. 290,000

Retained Earnings Dr. 427900 [430000 - 2100]

To Investment in Sledge (80%) 574320

To non controlling interest in sledge (20%) 143580

4. Contracts Dr. 69300

Buildings Dr. 29600

To Investment in Sledge (80%) 79120

To non controlling interest in sledge (20%) 19780

		Life	depr p.a	depr 2 years	WDV
Contracts	77000	20	3850	7700	69300
Building	37000	10	3700	7400	29600

5. COGS Dr. 8325

To Inventory 8325

[50 % of (37000 - 20350)

6. Equity Income of subsidiary Dr. 63740

To Investment in Sledge 63740

[300,000 - 155,000 -57000] - 8325 = 79675 * 80% = 63740

7. Depreciation Expenses Dr. 3700

Amortization Expenses Dr. 3850

To Contracts 3850

To Buildings 3700

8. Sales Dr. 37000

To COGS 37000

9.  Accumulated Dep. Dr. 1620

To Depr expenses 1620

[(20500 - 12400) / 5]

Part 2

Calculation of Net income attributable to noncontrolling interest

Revenue 300,000

Less COGS (155,000)

Less Expenses (57,000)

Less excess depr and amortization (7550)

Add Intra entity gross profit 2100

Less Intra entity gross profit (8325)

Adjusted net income of subsidiary = 74225

Outside ownership = 20%

Thus, Net income attributable to noncontrolling interest = 14,845