In: Accounting
Mill Corporation acquired 100 percent ownership of Roller Company on January 1, 20X8, for $125,000. At that date, the fair value of Roller’s buildings and equipment was $19,000 more than the book value. Buildings and equipment are depreciated on a 5-year basis. Although goodwill is not amortized, Mill’s management concluded at December 31, 20X8, that goodwill involved in its acquisition of Roller shares had been impaired and the correct carrying value was $2,600.
Trial balance data for Mill and Roller on December 31, 20X8, are as follows: |
Mill Corporation | Roller Company | |||||||||||||||
Item | Debit | Credit | Debit | Credit | ||||||||||||
Cash | $ | 28,500 | $ | 30,000 | ||||||||||||
Accounts Receivable | 78,000 | 21,000 | ||||||||||||||
Inventory | 98,000 | 34,000 | ||||||||||||||
Land | 48,000 | 24,000 | ||||||||||||||
Buildings & Equipment | 357,000 | 151,000 | ||||||||||||||
Investment in Roller Co. Stock | 125,500 | |||||||||||||||
Cost of Goods Sold | 132,000 | 117,000 | ||||||||||||||
Wage Expense | 34,000 | 18,000 | ||||||||||||||
Depreciation Expense | 21,000 | 6,000 | ||||||||||||||
Interest Expense | 8,000 | 5,000 | ||||||||||||||
Other Expenses | 9,500 | 6,000 | ||||||||||||||
Dividends Declared | 34,000 | 21,300 | ||||||||||||||
Accumulated Depreciation | $ | 132,000 | $ | 21,000 | ||||||||||||
Accounts Payable | 34,000 | 10,000 | ||||||||||||||
Wages Payable | 11,000 | 8,000 | ||||||||||||||
Notes Payable | 131,000 | 113,300 | ||||||||||||||
Common Stock | 195,000 | 59,000 | ||||||||||||||
Retained Earnings | 186,700 | 39,000 | ||||||||||||||
Sales | 262,000 | 183,000 | ||||||||||||||
Income from Subsidiary | 21,800 | |||||||||||||||
$ | 973,500 | $ | 973,500 | $ | 433,300 | $ | 433,300 | |||||||||
Required: |
a. |
Prepare the following consolidating entries needed to prepare a three-part consolidation worksheet as of December 31, 20X8. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
a) Preparing all consolidating entries needed to prepare a three-part consolidation worksheet as of December 31, 20X8: | ||
General Journal | Debit | Credit |
Equity Method Entries on Mill Corp.'s Books: | ||
Investment in Roller Co. ($183000-$152000) | $31,000 | |
Income from Roller Co | $31,000 | |
Record Mill Corp.'s 100% share of Roller Co.'s 20X8 income | ||
Cash | $21,300 | |
Investment in Roller Co. | $21,300 | |
Record Mill Corp.'s 100% share of Roller Co.'s 20X9 dividend | ||
Income from Roller Co. | $2,000 | |
Investment in Roller Co. | $2,000 | |
Record amortization of excess acquisition price |
Book Value Calculations: | |||||
Total Book Value | = | Common Stock | + | Retained Earnings | |
Original book value | $98,000 | $59,000 | $39,000 | ||
+ Net Income | $31,000 | $31,000 | |||
- Dividends | ($21,300) | ($21,300) | |||
Ending book value | $107,700 | $59,000 | $48,700 |
Basic elimination entry: | ||
General Journal | Debit | Credit |
Common stock | $59,000 | |
Retained earnings | $39,000 | |
Income from Roller Co. | $31,000 | |
Dividends declared | $21,300 | |
Investment in Roller Co. | $107,700 |
Excess Value (Differential) Calculations: | |||||||
Total | = | Buildings & Equipment | Acc. Depr. | Goodwill | |||
Beginning balance | $17,800 | $19,000 | ($3,800) | $2,600 | |||
Changes | ($3,800) | ($3,800) | |||||
Ending balance | $14,000 | $19,000 | ($7,600) | $2,600 |
Amortized excess value reclassification entry: | ||
General Journal | Debit | Credit |
Depreciation expense | $3,800 | |
Income from Roller Co. | $3,800 |
Excess Value (differential) reclassification entry: | ||
General Journal | Debit | Credit |
Buildings & Equipment | $19,000 | |
Goodwill | $2,600 | |
Accumulated depreciation | $7,600 | |
Investment in Roller Co. | $14,000 | |
Optional accumulated depreciation elimination entry: | ||
General Journal | Debit | Credit |
Accumulated depreciation | Nil | |
Building & equipment | Nil |