Question

Prime Company holds 80 percent of Suspect Company’s stock, acquired on January 1, 20X2, for $182,000. On the acquisition date, the fair value of the noncontrolling interest was $45,500. Suspect reported retained earnings of $50,000 and had $100,000 of common stock outstanding. Prime uses the fully adjusted equity method in accounting for its investment in Suspect.

Trial balance data for the two companies on December 31, 20X6, are as follows:

	Prime Company									Suspect Company
Item	Debit				Credit					Debit				Credit
Cash & Accounts Receivable		$	116,000								$	38,000
Inventory			277,000									90,000
Land			65,000									60,000
Buildings & Equipment			560,000									130,000
Investment in Suspect Co.			191,220
Cost of Goods Sold			168,200									78,200
Depreciation and Amortization Expense			28,000									13,000
Other Expenses			15,000									5,000
Dividends Declared			30,000									5,000
Accumulated Depreciation						$	229,600								$	39,000
Accounts Payable							60,000									24,000
Bonds Payable							170,000									45,000
Common Stock							300,000									100,000
Retained Earnings							356,560									41,200
Sales							290,000									170,000
Gain on Sale of Equipment							16,000
Income from Suspect Co.							28,260
Total		$	1,450,420			$	1,450,420				$	419,200			$	419,200

Additional Information

1. At the date of combination, the book values and fair values of all separately identifiable assets and liabilities of Suspect were the same. At December 31, 20X6, the management of Prime reviewed the amount attributed to goodwill as a result of its purchase of Suspect stock and concluded an impairment loss of $20,475 should be recognized in 20X6 and shared proportionately between the controlling and noncontrolling shareholders.
2. On January 1, 20X5, Suspect sold land that had cost $8,000 to Prime for $18,000.
3. On January 1, 20X6, Prime sold to Suspect equipment that it had purchased for $82,500 on January 1, 20X1. The equipment has a total economic life of 15 years and was sold to Suspect for $71,000. Both companies use straight-line depreciation.
4. There was $4,000 of intercompany receivables and payables on December 31, 20X6.

Required:
a. Give all consolidation entries needed to prepare a consolidation worksheet for 20X6. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b. Prepare a three-part worksheet for 20X6. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)

c. Prepare a consolidated balance sheet, income statement, and retained earnings statement for 20X6. (Be sure to list the assets and liabilities in order of their liquidity. Amount to be deducted should be indicated by a minus sign.)
  

Answer 1

a. Give all consolidation entries needed to prepare a consolidation worksheet for 20X6. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Date	Particulars	LF	Debit($)	Credit($)
20X6	Goodwill (182000+45500-100000-50000)		77500
31/12	To Investment in stock of suspect company(77500*80%)			62000
1)	To Non controlling interest(77500*20%)			15500
	(being recognition of goodwill)
2)	Goodwill impairment loss		20475
	To Non controlling interest in net asset of suspect co(20475*20%)			4095
	To Income from suspect co (20475*80%)			16380
	(being recognition of impairement loss on goodwill)
3)	Accounts payable		4000
	To accounts receivable			4000
	(being elimination of intercompany receivables and payables)
20X5
1/1	No journal entry is required to record gain on sale of land
2)	Gain on sale of equipment(71000-(82500-(11500*5 years)		46000
	To equipment			46000
	(being eliminationof sale on equipment)
3)	non controlling interest in net assets of suspect company(4600*20%)		920
	Income from suspect co(4600*80%)		3680
	To Depreciation expenses(46000/10 remaining years)***			4600
	(being recorded entry for adjusting accumalated depreciation)

life of equipment is 15 years and it was used for 5 years and sold after 5 years.so remaining 10 years is the useful life.