Question

Pop Corporation acquired 70 percent of Soda Company's voting common shares on January 1, 20X2, for $118,300. At that date, the noncontrolling interest had a fair value of $50,700 and Soda reported $70,000 of common stock outstanding and retained earnings of $31,000. The differential is assigned to buildings and equipment, which had a fair value $24,000 higher than book value and a remaining 10-year life, and to patents, which had a fair value $44,000 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		$	19,400						$	25,600
Inventory			169,000							39,000
Land			84,000							44,000
Buildings & Equipment			380,000							264,000
Investment in Soda Company			119,280
Cost of Goods Sold			190,000							83,800
Depreciation Expense			25,000							20,000
Interest Expense			20,000							9,200
Dividends Declared			34,000							19,000
Accumulated Depreciation					$	144,000							$	85,000
Accounts Payable						96,400								39,000
Bonds Payable						255,160								99,000
Bond Premium														2,600
Common Stock						124,000								70,000
Retained Earnings						131,900								64,000
Sales						264,000								145,000
Other Income						13,600
Income from Soda Company						11,620
		$	1,040,680		$	1,040,680			$	504,600			$	504,600
On December 31, 20X2, Soda purchased inventory for $27,000 and sold it to Pop for $45,000. Pop resold $28,000 of the inventory (i.e., $28,000 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 $54,000 to Pop for $90,000, and Pop resold all but $26,000 of its purchase. On March 10, 20X3, Pop sold inventory purchased for $14,000 to Soda for $28,000. Soda sold all but $7,000 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. Required: a. Prepare all consolidation entries needed to prepare a full set of consolidated financial statements at December 31, 20X3, for Pop and Soda. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) b. Prepare a three-part consolidation worksheet for 20X3.

Answer 1

Consolidated journal entries of pop and soda corporation for the period dec 31 20x3

S.No	Accounts title	Debit ($)	Credit ($)
1	Common stock a/c dr	70000
	Retained earning a/c dr	64000
	Income from soda company a/c dr	19460
	Non Controlling Interest in Net Income soda company dr	9840
	To dividends declared		19000
	To investment in soda company		99960
	To Non Controlling Interest in Net Assets of soda company		44340
2	amortization expense a/c dr	8800
	Depreciation expense a/c dr	2400
	To Income from soda company a/c		7840
	To Non Controlling Interest in Net Income of soda company		3360
3	buildings and equipment a/c dr	22000
	Patents a/c (8800*2) dr.	17600
	To accumulated depreciation a/c (2400*2)		4800
	To income from soda company		24360
	To Non Controlling Interest in Net Income of soda company		10440
4	Accumulated depreciation a/c dr	45000
	To buildings and equipment a/c [85000-(20000*2)]		45000
5	Non Controlling Interest in Net Assets of soda company a/c dr	3360
	Investment in soda company a/c dr	7840
	To cost of goods sold		11200
6	Non Controlling Interest in Net Assets of soda company a/c dr	2040
	Investment in soda company a/c dr	4760
	To inventory a/c		6800
7	sales a/c (90000+28000) dr	118000
	To cost of goods sold a/c		104100
	To inventory (10400+3500) a/c		13900

Inventory =

(45000-28000) *[(45000-27000) /45000] = $7200

Book value calculations
	Minority interest 30%	+	Pop corp 70%	=	common Stock	+	retained Earnings
Beginning book value	40200		93800		70000		64000
Add: net income	9600		22400				32000
Less: dividends	(5700)		(13300)				(19000)
Ending book value	44100		102900		70000		77000

Net income =

145000-83800-20000-9200 = $32000

Net income =

140000-81800-20000-7200 = $31000

Adjustment to basic Consolidation entry
	NCI / Minority interest	Pop corp
Net income	9600	22400
Add: reverse GP deferral (up) 28000*[(45000-27000) /45000] = 11200	3360	7840
Less: gross profit deferral (down) 7000*[(28000-14000) /28000]		(3500)
Less: gross profit deferral (up) 26000*[(90000-54000) /90000] = 10400	(3120)	(7280)
Income to be eliminated	9840	19460
Ending book value	44100	102900
Add: reverse GP deferral (up) 29000*[(50000-30000) /50000] =11600	3360	7840
Less: gross profit deferral (down) 7000*[(28000-14000) /28000]		(3500)
Less: gross profit deferral (up) 26000*[(90000-54000) /90000] =10400	(3120)	(7280)
Adjusted book value	$44340	$99960