Question

On January 1, 2016, Alpha acquired 80 percent of Delta. Of Delta's total business fair value, $224,000 was allocated to copyrights with a 20-year remaining life. Subsequently, on January 1, 2017, Delta obtained 70 percent of Omega's outstanding voting shares. In this second acquisition, $148,200 of Omega's total business fair value was assigned to copyrights that had a remaining life of 12 years. Delta's book value was $585,000 on January 1, 2016 and Omega reported a book value of $181,500 on January 1, 2017.

Delta has made numerous inventory transfers to Alpha since the business combination was formed. Intra-entity gross profits of $16,000 were present in Alpha's inventory as of January 1, 2018. During the year, $274,000 in additional intra-entity sales were made with $30,140 in Intra-entity gross profits in inventory remaining at the end of the period.

Both Alpha and Delta utilized the partial equity method to account for their investment balances.

Following are the individual financial statements for the companies for 2018 with consolidated totals.

	Alpha Company				Delta Company				Omega Company				Consolidated Totals
Sales	$	(998,200	)		$	(682,100	)		$	(285,000	)		$	(1,691,300	)
Cost of goods sold		555,000				299,000				131,000				725,140
Operating expenses		335,000				171,000				77,000				606,550
Income of subsidiary		(212,800	)			(53,900	)			0				0
Separate company net income	$	(321,000	)		$	(266,000	)		$	(77,000	)
Consolidated net income													$	(359,610	)
Net income attributable to noncontrolling interest (Delta Company)														46,403
Net income attributable to noncontrolling interest (Omega Company)														19,395
Net income attributable to Alpha Company													$	(293,812	)
Retained earnings, 1/1/18	$	(642,500	)		$	(495,000	)		$	(141,500	)		$	(604,864	)
Net income (above)		(321,000	)			(266,000	)			(77,000	)			(293,812	)
Dividends declared		50,000				40,000				60,000				50,000
Retained earnings, 12/31/18	$	(913,500	)		$	(721,000	)		$	(158,500	)		$	(848,676	)
Cash and receivables	$	239,000			$	493,810			$	69,500			$	802,310
Inventory		316,000				382,500				206,000				874,360
Investment in Delta Company		852,000				0				0				0
Investment in Omega Company		0				284,690				0				0
Property, plant, and equipment		499,000				330,000				336,000				1,165,000
Copyrights		0				0				0				313,900
Total assets	$	1,906,000			$	1,491,000			$	611,500			$	3,155,570
Liabilities	$	(792,500	)		$	(650,000	)		$	(353,000	)		$	(1,795,500	)
Common stock		(200,000	)			(120,000	)			(100,000	)			(200,000	)
Retained earnings, 12/31/18		(913,500	)			(721,000	)			(158,500	)			(848,676	)
Noncontrolling interest in Delta Company, 12/31/18		0				0				0				(196,794	)
Noncontrolling interest in Omega Company, 12/31/18		0				0				0				(114,600	)
Total liabilities and equities	$	(1,906,000	)		$	(1,491,000	)		$	(611,500	)		$	(3,155,570	)

Develop the worksheet entries necessary to derive these reported balances: (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Prepare Entry *G to recognize the intra-entity gross profit in inventory in 2017.

Note: Enter debits before credits.

	Transaction Accounts Debit Credit 1

Prepare Entry *C1 to recognize amortization expense from Dela's acquisition for 2017.

Note: Enter debits before credits.

	Transaction Accounts Debit Credit 2

Prepare Entry *C2 to To recognize accrual adjustments for excess amortization and inventory deferral.

Note: Enter debits before credits.

	Transaction Accounts Debit Credit 3 Prepare Entry S1 to eliminate the stockholders' equity accounts of Omega against the parent's investment account and to recognize the outside ownership. Note: Enter debits before credits. Transaction Accounts Debit Credit 4

Prepare Entry S2 to eliminate the stockholders' equity accounts of Delta against the corresponding balance in the investment account and to recognize the outside ownership.

Note: Enter debits before credits.

Transaction Accounts Debit Credit 5 Prepare Entry A to recognize the January 1, 2018 unamortized copyrights. Note: Enter debits before credits. Transaction Accounts Debit Credit 6 Prepare Entry I1 to eliminate the intra-entity income accrual found on Alpha's records. Note: Enter debits before credits. Transaction Accounts Debit Credit 7 Prepare Entry I2 to eliminate the intra-entity income accrual found on Delta's records. Note: Enter debits before credits. Transaction Accounts Debit Credit 8 Prepare Entry D1 to eliminate the intra entity dividends for Delta. Note: Enter debits before credits. Transaction Accounts Debit Credit 9 Prepare Entry D2 to eliminate the intra entity dividends for Omega. Note: Enter debits before credits. Transaction Accounts Debit Credit 10 Prepare Entry E to recognize the current year amortization on copyrights. Note: Enter debits before credits. Transaction Accounts Debit Credit 11 Prepare Entry TI to eliminate the intra-entity inventory transfer. Note: Enter debits before credits. Transaction Accounts Debit Credit 12 Prepare Entry G to defer the ending intra-entity gross profit on the intra-entity transfers. Note: Enter debits before credits. Transaction Accounts Debit Credit 13

Answer 1

Calculation of Amortization Expenses

Account

Value

Life Span

Annual Excess Amortization

Delta's Copyright

$224,000

20

$11,200

Omega's Copyright

$148,200

12

$12,350

Total

$23,550

Entry "G"

Date

Description

Debt Amount

Cr. Amount

12/31/2013

Retained Earnings (Delta)

$16,000

To Cost of Goods Sold

$16,000

Entry "C1"

12/31/2013

Retained Earnings, (Delta)

$8,645

$6,916.0

To Investment in Omega

$8,645

($12350*70%)

Entry "C2"

12/31/2013

Retained Earnings, (Alpha)

$37,616

Delta Amortization =(11200*80%)*2 = $17920

To Investment in Delta

$37,616

(Total = $17900+12800+6916)

Deferral = $16,000*80% = $12,800

Share = 8645*80%)*1 yr = $6,916

Entry S1

12/31/2013

Common Stock (Omega)

$100,000

Retained Earnings (Omega)

$100,000

To Investment in Omega

$140,000.0

To NCI in Omega

$60,000.0

Entry S2

12/31/2013

Common Stock (Delta)

$120,000

Total Equity = $120000+(495000-16000-8645)

Retained Earnings (Delta)

$470,355

Investment =$590355 * 80%

To Investment in Delta

$472,284

NCI = $590355 * 20%

To NCI in Delta

$118,071

Entry A

12/31/2013

Copy Rights

$225,00

To Investments in Delta

$161,280

Table showing calculation of unamortized portion

To Investments in Omega

$95,095

Account

Value

Life Used

Amortization Expense

Amortization used

Unamortized amount

To NCI in Delta

$40,320

Delta

$224,000

2

$11,200

($22,400)

$201,600

To NCI in Omega

$40,755

Omega

$148,200

1

$12,350

($12,350)

$135,850

Total

$23,550

$337,450

Entry I1

12/31/2013

Income of Subsidiary

$212,800

Table showing Allocation of the amounts to its corresponding investment and NCI accounts

To Investments in Delta

$212,800

Delta

Omega

Investment

NCI

Investments

NCI

Entry I2

Amount

$201,600

$201,600

$135,850

$135,850

12/31/2013

Income of Subsidiary

$53,900

Percentages

80%

20%

70%

30%

To Investment in Omega

$53,900

Allocation

$161,280

$40,320

$95,095

$40,755

Entry D1

12/31/2013

Investment in Delta

$32,000

Dividends = $40000*80% = $32,000

To Dividends paid(Delta)

$32,000

Entry D2

12/31/2013

Investment in Omega

$35,000

Dividends = $50,000*70% = $35,000

To Dividends Paid (Omega)

$35,000

Entry E

12/31/2013

Operating Expenses

$23,550

To Copyrights

$23,550

Entry TI

12/31/2013

Sales

$274,000

To cost of goods Sold

$274,000

Entry G

12/31/2013

Cost of Goods Sold

$30,140

To Inventory

$30,140