Question

Pretzel Corporation acquired 100 percent of Stick Company’s outstanding shares on January 1, 20X7. Balance sheet data for the two companies immediately after the purchase follow:

	Pretzel Corporation				Stick Company
Cash	$	87,000			$	31,000
Accounts Receivable		96,000				53,000
Inventory		87,000				83,000
Buildings & Equipment		419,000				289,000
Less: Accumulated Depreciation		(150,000	)			(89,000	)
Investment in Stick Company		318,000
Investment in Stick Company Bonds		58,000
Total Assets	$	915,000			$	367,000
Accounts Payable	$	58,000			$	24,000
Bonds Payable		189,000				118,000
Common Stock		296,000				155,000
Capital in Excess of Par						145,000
Retained Earnings		372,000				(75,000	)
Total Liabilities & Equities	$	915,000			$	367,000

As indicated in the parent company balance sheet, Pretzel purchased $58,000 of Stick’s bonds from the subsidiary at par value immediately after it acquired the stock. An analysis of intercompany receivables and payables also indicates that the subsidiary owes the parent $11,000. On the date of combination, the book values and fair values of Stick’s assets and liabilities were the same.

Required:
a. Prepare all consolidation entries needed to prepare a consolidated balance sheet for January 1, 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) ( 1. Record the basic consolidation entry, 2. Record the excess value, 3. Record the entry to eliminate the intercompany accounts for Bonds Payable. 4.Record the entry to eliminate the remaining intercompany accounts. 5. Record the optional accumulated depreciation consolidation entry.)

b. Complete a consolidated balance sheet worksheet. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)

c. Prepare a consolidated balance sheet. (Amounts to be deducted should be entered with a minus sign.)

Answer 1

.

Solution-a	Journal Entry
	Particular		Amount(Dr)	Amount(Cr)
	Cash A/c Dr		31,000
	Account receivable A/c Dr.		53,000
	Inventory A/c Dr.		83,000
	Buildings & Equipment A/c Dr.		2,00,000
	Loss in purchase on business		93,000
	to Accounts Payable A/c			24,000
	to Bonds Payable A/c			1,18,000
	to Purchase consideration A/c			3,18,000
	(Consolidated Purchase entry)
Solution-B	Working for the consolidation
	Particular	Pretzel Corporation	Stick corporation	Adjustment	Total need to be booked
	Cash	87000	31000	0	118000
	Accounts Receivable	96000	53000	-11000	138000
	Inventory	87000	83000	0	170000
	Buildings & Equipment	419000	289000	0	708000
	Less: Accumulated Depreciation	-1,50,000	-89,000		-239000
	Net Buildings & Equipment	2,69,000	2,00,000	0	4,69,000
	Investment in Stick Company	318000		-318000	0
	Investment in Stick Company Bonds	58000		-58000	0
	Total Assets	9,15,000	3,67,000		8,95,000
					0
	Accounts Payable	58000	24000	-11000	71,000
	Bonds Payable	189000	118000	-58000	2,49,000
	Common Stock	296000	155000	-155000	2,96,000
	Capital in Excess of Par		145000	-145000	-
	Retained Earnings	372000	-75,000	-18000	2,79,000
	Total Liabilities & Equities	915000	367000		8,95,000
	Note :- 1. in Account receivable, 11,000 need to be deducted since it is intergroup transactions
	2. Intergroup Bonds Bonds need to be eliminated , since they belongs to parents and subsidiray transactions itself.
	3 In Account Payable, 11,000 need to be deducted since it is intergroup transactions
	4. Loss of 93,000 is adjusted loss is deducted through retained earning of parent company
Solution-C	Consolidated Balance Sheet
	Particular	Total need to be booked
	Cash	118000
	Accounts Receivable	138000
	Inventory	170000
	Buildings & Equipment	708000
	Less: Accumulated Depreciation	-239000
	Net Buildings & Equipment	4,69,000
	Investment in Stick Company	0
	Investment in Stick Company Bonds	0
	Total Assets	8,95,000
	Accounts Payable	71,000
	Bonds Payable	2,49,000
	Common Stock	2,96,000
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