Question

I am wondering how to calculate the consolidation entry for accumulated depreciation in the consolidation of a less than wholly owned subsidiary acquired at more than book value with inventory transfers. Nothing I do seems to work, and I am getting really creative and confusing myself with all sorts of calculations. What is the proper formula for calculating consolidation entry for accumulated depreciation in this situation?

Pop Corporation acquired 70 percent of Soda Company's voting common shares on January 1, 20X2, for $112,700. At that date, the noncontrolling interest had a fair value of $48,300 and Soda reported $71,000 of common stock outstanding and retained earnings of $31,000. The differential is assigned to buildings and equipment, which had a fair value $28,000 higher than book value and a remaining 10-year life, and to patents, which had a fair value $31,000 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 $16,400     $22,600      Inventory  166,000      36,000      Land  81,000      41,000      Buildings & Equipment  350,000      261,000      Investment in Soda Company  117,200             Cost of Goods Sold  187,000      80,800      Depreciation Expense  20,000      15,000      Interest Expense  17,000      6,200      Dividends Declared  31,000      16,000      Accumulated Depreciation    $141,000      $85,000  Accounts Payable     93,400       36,000  Bonds Payable     219,250       94,000  Bond Premium             1,600  Common Stock     121,000       71,000  Retained Earnings     128,900       61,000  Sales     261,000       130,000  Other Income     10,600          Income from Soda Company     10,450            $985,600 $985,600  $478,600  $478,600  

On December 31, 20X2, Soda purchased inventory for $31,500 and sold it to Pop for $45,000. Pop resold $30,000 of the inventory (i.e., $30,000 of the $45,000 acquired from Soda) during 20X3 and had the remaining balance in inventory at December 31, 20X3.

During 20X3, Soda sold inventory purchased for $56,000 to Pop for $80,000, and Pop resold all but $25,000 of its purchase. On March 10, 20X3, Pop sold inventory purchased for $15,000 to Soda for $30,000. Soda sold all but $7,800 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.

I need to be able to calculate the amount of accumulated depreciation for consolidated financial adjustment entries. I am aware that the transaction is Debited to Accumulated Depreciation and is Credited to Buildings and Equipment

Answer 1

Hello Buddy, so just clarifying your requirement, you want to know how to calculate the amount of accumulated depreciation in the consolidated financial statement. If your requirment is something else, do leave a comment and I shall help you out there.

Refering to the question, it is important to note that, 70% of the firm has been acquired i.e. the controlling stake in a firm has been aquired. In such situations where controlling interest has been acquired but not 100% acquisition, then, in the consolidated financial statements, all assets and liabilities of the acquiree firm are consolidated into the assets and liabilities of the acquiring firm. T