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On January 1, 2014, Pert Company purchased 85% of the outstanding common stock of Sales Company...

On January 1, 2014, Pert Company purchased 85% of the outstanding common stock of Sales Company for$350,000.On that date, Sales Company’s stockholders’ equity consisted of common stock, $100,000; other con-tributed capital, $40,000; and retained earnings, $140,000. Pert Company paid more than the book value of netassets acquired because the recorded cost of Sales Company’s land was significantly less than its fair value.During 2014 Sales Company earned $148,000 and declared and paid a $50,000 dividend. Pert Companyused the partial equity method to record its investment in Sales Company.

Prepare the workpaper eliminating entries for a workpaper on December 31, 201

Solutions

Expert Solution

ELIMINATING ENTRIES :

SL No. Accounts & Explanation Debit Credit
1 ELIMINATION OF SUBSIDIARY INCOME RECOTDED BY PARENT
Equity Income (148,000 X 85%)    125,800.00
   To Investment in Sales company    125,800.00
2 ELIMINATION OF DIVIDENT PAID TO SUBSIDIARY
Investment in Sales company      42,500.00
   Dividend declared (50,000 X 85%)      42,500.00
3 ELIMINATION OF SUBSIDIARY EQUITY
Common Stock - sales company    100,000.00
Other contributed capita - sales company      40,000.00
Retained earnings - sales company    140,000.00
Difference between implied and BV    131,765.00
   Investment in sales company    350,000.00
   Non Controlling interest [($350,000/.85) X .15]      61,765.00
4 ALLOCATION OF DIFFERENCE
Land    131,765.00
   Difference between implied and BV    131,765.00

ekkarill92 answered 1 year ago
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