Question

Pop Corporation acquired 70 percent of Soda Company's voting common shares on January 1, 20X2, for $119,000. At that date, the noncontrolling interest had a fair value of $51,000 and Soda reported $70,000 of common stock outstanding and retained earnings of $33,000. The differential is assigned to buildings and equipment, which had a fair value $29,000 higher than book value and a remaining 10-year life, and to patents, which had a fair value $38,000 higher than book value and a remaining life of five years at the date of the business combination. Trial balances for the companies as of December 31, 20X3, are as follows:

	Pop Corporation								Soda Company
Item		Debit			Credit				Debit				Credit
Cash & Accounts Receivable		$	15,400						$	21,600
Inventory			165,000							35,000
Land			80,000							40,000
Buildings & Equipment			340,000							260,000
Investment in Soda Company			109,600
Cost of Goods Sold			186,000							79,800
Depreciation Expense			20,000							15,000
Interest Expense			16,000							5,200
Dividends Declared			30,000							15,000
Accumulated Depreciation					$	140,000							$	80,000
Accounts Payable						92,400								35,000
Bonds Payable						200,000								100,000
Bond Premium														1,600
Common Stock						120,000								70,000
Retained Earnings						127,900								60,000
Sales						260,000								125,000
Other Income						13,600
Income from Soda Company						8,100
		$	962,000		$	962,000			$	471,600			$	471,600

On December 31, 20X2, Soda purchased inventory for $32,000 and sold it to Pop for $48,000. Pop resold $27,000 of the inventory (i.e., $27,000 of the $48,000 acquired from Soda) during 20X3 and had the remaining balance in inventory at December 31, 20X3.

During 20X3, Soda sold inventory purchased for $60,000 to Pop for $90,000, and Pop resold all but $24,000 of its purchase. On March 10, 20X3, Pop sold inventory purchased for $15,000 to Soda for $30,000. Soda sold all but $7,600 of the inventory prior to December 31, 20X3. Assume Pop uses the fully adjusted equity method, that both companies use straight-line depreciation, and that no property, plant, and equipment has been purchased since the acquisition.

Required:
a. Prepare all consolidation entries needed to prepare a full set of consolidated financial statements at December 31, 20X3, for Pop and Soda. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b. Prepare a three-part consolidation worksheet for 20X3

Answer 1

Calculation of excess acquisition date fair value $ $ Consideration paid on 1/1/2012 Fair value of NCI Total fair value of Siedel Less: Net book value (70,000 + 33,000) Excess of fair value Allcations -Building and Equipment -Patents 1,19,000 51,000 1,70,000 1,03,000 67,000 $ 29,000 38,000 Working Notes 1. Fair Value Difference Increase in Value Amortization Period (In years) 10 5 -Building and Equipment -Patents Total 29,000 38,000 Amortization per year 2,900 7,600 $ 10,500

2. Intercompany Inventory profit defferal Year 2012 Upstream Cost to Soda Transfer to Pop Mark up 32,000 48,000 16,000 33% Markup on sales (%) [(16000 x 48000)/100] Ending Inventory (48000 - 27000) 21,000 Intercompany profit $ 7,000 Year 2013 Cost to Soda Transfer to Pop Mark up 60,000 90,000 30,000 33% Markup on sales (%) [(30000 x 90,000)/100] Ending Inventory 24,000 Intercompany profit $ 8,000

Year 2013 Downstream Cost to Pop Transfer to Soda Mark up 15,000 30,000 15,000 50% Markup on sales (%) [(15,000 x 30,000) /100] Ending Inventory 7,600 Intercompany profit $ 3,800 Computation of Net income of Soda 1,25,000 Sales Less: Cost of goods sold Depreciation expense Interest expense Total expense Net income 79,800 15,000 5,200 1,00,000 25,000 $

Book Value Calculations + Beginning BV Add: Net income Less: Dividends Ending BV POP (70%) 91,000 17,500 (10,500) $ 98,000 NCI (30%) 39,000 7,500 (4,500) + $ 42,000 Common Stock + Retained Earnings 70,000 60,000 25,000 (15,000) $ 70,000 + $ 70,000 $ Total 1,30,000 25,000 (15,000 1,40,000 Adjustments to Basic Consolidation Entry POP (70%) 17,500 NCI (30%) 7,500 Total 25,000 Net income Elimination of Intercompany Gross Profit Upstream + Opening Inventory Profit - Closing Inventory Profit Downstream - Closing Inventory Profit 4,900 (5,600) 2,100 (2,400) $ $ 7,000 (8,000) $ (3,800) 13,000 (3,800) 20,200 7,200 Adjustments to Ending Book Value POP (70%) 98,000 NCI (30%) 42,000 Total 1,40,000 Book Value Elimination of Intercompany Gross Profit Upstream + Opening Inventory Profit Closing Inventory Profit Downstream - Closing Inventory Profit 4,900 (5,600) 2,100 (2,400) 7,000 (8,000) (3,800) 93,500 (3,800) 1,35,200 41,700