Question

Print Corporation acquired all outstanding $10 par value voting common stock of Size Inc. on January 1, 20X9, in exchange for 25,000 shares of its $20 par value voting common stock. On December 31, 20X8, Print’s common stock had a closing market price of $30 per share on a national stock exchange. The acquisition was appropriately accounted for under the acquisition method. Both companies continued to operate as separate business entities maintaining separate accounting records with years ending December 31. Print accounts for its investment in Size stock using the fully adjusted equity method (i.e., adjusting for unrealized intercompany profits).

On December 31, 20X9, the companies had condensed financial statements as follows:

	Print Corporation						Size Inc.
Income Statement	Dr (Cr)						Dr (Cr)
Net Sales		$	(3,800,000	)				$	(1,500,000	)
Income from Size Inc.			(128,000	)
Gain on Sale of Warehouse			(30,000	)
Cost of Goods Sold			2,360,000						870,000
Operating Expenses (including depreciation)			1,100,000						440,000
Net Income		$	(498,000	)				$	(190,000	)
Retained Earnings Statement
Balance, 1/1/X9		$	(440,000	)				$	(156,000	)
Net Income			(498,000	)					(190,000	)
Dividends Paid									40,000
Balance, 12/31/X9			(938,000	)				$	(306,000	)
Balance Sheet
Assets:
Cash		$	570,000					$	150,000
Accounts Receivable (net)			860,000						350,000
Inventories			1,060,000						410,000
Land, Plant, & Equipment			1,320,000						680,000
Accumulated Depreciation			(370,000	)					(210,000	)
Investment in Size Inc.			838,000
Total Assets		$	4,278,000					$	1,380,000
Liabilities & Stockholders’ Equity:
Accounts Payable & Accrued Expenses		$	(1,340,000	)				$	(594,000	)
Common Stock			(1,700,000	)					(400,000	)
Additional Paid-in Capital			(300,000	)					(80,000	)
Retained Earnings			(938,000	)					(306,000	)
Total Liabilities & Equity		$	(4,278,000	)				$	(1,380,000	)

Additional Information
No changes occurred in the Common Stock and Additional Paid-in Capital accounts during 20X9 except the one necessitated by Print's acquisition of Size.

At the acquisition date, the fair value of Size’s machinery exceeded its book value by $54,000. The excess cost will be amortized over the estimated average remaining life of six years. The fair values of all of Size’s other assets and liabilities were equal to their book values. At December 31, 20X9, Print’s management reviewed the amount attributed to goodwill as a result of its purchase of Size’s common stock and concluded an impairment loss of $35,000 should be recognized in 20X9.

During 20X9, Print purchased merchandise from Size at an aggregate invoice price of $180,000, which included a 100 percent markup on Size’s cost. At December 31, 20X9, Print owed Size $86,000 on these purchases, and $36,000 of this merchandise remained in Print’s inventory.

Required:
Complete the consolidation worksheet that would be used to prepare a consolidated income statement and a consolidated retained earnings statement for the year ended December 31, 20X9, and a consolidated balance sheet as of December 31, 20X9. Ignore income tax considerations. (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.)

Answer 1

Solution:

Equity Method Entries on Pint Corp.'s Books:

Reversal/Deferred GP Calculations:

Basic elimination entry:

Amortized excess value reclassification entry:

Excess value (differential) reclassification entry:

Eliminate intercompany accounts:

Deferral of this year's unrealized profits on inventory transfers:

20X9 Upstream Transactions: