Question

Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $97,300. At that date, the fair value of the noncontrolling interest was $41,700. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:

	Phone					Smart
Item	Corporation					Corporation
Cash		$	60,300				$	31,000
Accounts Receivable			99,000					46,000
Inventory			142,000					91,000
Land			71,000					41,000
Buildings & Equipment			427,000					261,000
Less: Accumulated Depreciation			(151,000	)				(75,000	)
Investment in Smart Corporation			97,300
Total Assets		$	745,600				$	395,000
Accounts Payable		$	135,500				$	25,000
Mortgage Payable			325,100					252,000
Common Stock			78,000					33,000
Retained Earnings			207,000					85,000
Total Liabilities & Stockholders’ Equity		$	745,600				$	395,000

At the date of the business combination, the book values of Smart’s assets and liabilities approximated fair value except for inventory, which had a fair value of $97,000, and buildings and equipment, which had a fair value of $201,000. At December 31, 20X4, Phone reported accounts payable of $14,200 to Smart, which reported an equal amount in its accounts receivable.

Required:
a. Prepare the consolidation entry or entries needed to prepare a consolidated balance sheet immediately following the business combination. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

b. Prepare 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 in good form. (Amounts to be deducted should be indicated with a minus sign.)
  

Answer 1

1.	Analysis of profit
	Particulars		Pre
a	Retained Earnigs		85,000
b	Adjustments:
i	increase in fair market value of inventory [97,000 - 91,000]	6,000
ii	increase in valution of buildings & equipments [201,000 - (261,000 - 75,000]	15,000	21,000
	Net total		1,06,000
	Share of Professor Corporation	70%	74,200
	Minority interest	30%	31,800
2.	Cost of Control
	Particulars		$
a	Cost of investment		97,300
b	Share in net assets
	70% in common stock(33000*70%)	23,100
	Share in pre profits	74,200	97.300
3.	Minority interest
a	Share in common stock(33000*30%)		9,900
b	Share in pre profits		31,800
	Total		41,700

Part a.

Journal entry
Cash A/c	Dr.	31,000
Accounts receivables A/c	Dr.	46,000
Inventory A/c	Dr.	97,000
Land A/c	Dr.	41,000
Building & equipment A/c	Dr.	201,000
To Accounts payable A/c			25,000
To Mortgage payable A/c			252,000
To Investment in Down Corporation Stock A/c			97,300
To Minority Interest A/c			41,700

Part b

Items	Phone corp	Smart corp	Elimination	Total
Cash	60300	31000	-	91300
Accounts receivables	99000	46000	(14200)	130800
Inventory	142000	97000	-	239000
Land	71000	41000	-	112000
Building & equipment	276000	201000	-	477000
Accounts payable	135500	25000	(14200)	146300
Mortgage payable	325100	252000	-	577100
Common Stock	78000	-	-	78000
Retained earning	207000	-	-	207000
Minority share	41700	-	-	41700

Part c

Consolidated Balance Sheet
Particulars	Amount ($)
Cash	91300
Accounts receivables	130800
Inventory	239000
Land	112000
Building & equipment	477000
Total Assets	1,050,100
Accounts payable	146300
Mortgage payable	577100
Common Stock	78000
Retained earnings	207000
Minority share	41700
Total liabilities	1,050,100