Question

On January 1, 2017, Mona, Inc., acquired 80 percent of Lisa Company’s common stock as well as 60 percent of its preferred shares. Mona paid $69,000 in cash for the preferred stock, with a call value of 110 percent of the $50 per share par value. The remaining 40 percent of the preferred shares traded at a $38,000 fair value. Mona paid $580,000 for the common stock. At the acquisition date, the noncontrolling interest in the common stock had a fair value of $145,000. The excess fair value over Lisa’s book value was attributed to franchise contracts of $70,000. This intangible asset is being amortized over a 40-year period. Lisa pays all preferred stock dividends (a total of $12,000 per year) on an annual basis. During 2017, Lisa’s book value increased by $54,000.On January 2, 2017, Mona acquired one-half of Lisa's outstanding bonds payable to reduce the business combination's debt position. Lisa's bonds had a face value of $100,000 and paid cash interest of 8 percent per year. These bonds had been issued to the public to yield 14 percent. Interest is paid each December 31. On January 2, 2017, these bonds had a total $82,522 carrying amount. Mona paid $53,465, indicating an effective interest rate of 6 percent.On January 3, 2017, Mona sold Lisa fixed assets that had originally cost $104,000 but had accumulated depreciation of $80,000 when transferred. The transfer was made at a price of $128,000. These assets were estimated to have a remaining useful life of 10 years.

	Mona, Inc.				Lisa Company
Sales and other revenues	$	(508,000	)		$	(208,000	)
Expenses		224,000				124,000
Dividend income—Lisa common stock		(11,200	)			0
Dividend income—Lisa preferred stock		(7,200	)			0
Net income	$	(302,400	)		$	(84,000	)
Retained earnings, 1/1/18	$	(704,000	)		$	(508,000	)
Net income (above)		(302,400	)			(84,000	)
Dividends declared—common stock		96,800				14,000
Dividends declared—preferred stock		0				12,000
Retained earnings, 12/31/18	$	(909,600	)		$	(566,000	)
Current assets	$	134,419			$	504,000
Investment in Lisa—common stock		580,000				0
Investment in Lisa—preferred stock		69,000				0
Investment in Lisa—bonds		51,833				0
Fixed assets		1,104,000				804,000
Accumulated depreciation		(304,000	)			(204,000	)
Total assets	$	1,635,252			$	1,104,000
Accounts payable	$	(421,652	)		$	(139,874	)
Bonds payable		0				(100,000	)
Discount on bonds payable		0				9,874
Common stock		(304,000	)			(204,000	)
Preferred stock		0				(104,000	)
Retained earnings, 12/31/18		(909,600	)			(566,000	)
Total liabilities and equities	$	(1,635,252	)		$	(1,104,000	)

1. What consolidation worksheet adjustments would have been required as of January 1, 2017, to eliminate the subsidiary's common and preferred stocks?

2. What consolidation worksheet adjustments would have been required as of December 31, 2017, to account for Mona's purchase of Lisa's bonds?

3. What consolidation worksheet adjustments would have been required as of December 31, 2017, to account for the intra-entity sale of fixed assets?

Answer 1

Part A

Date	General journal	Debit	Credit
Jan 1, 2017	Preferred Stock (Lisa)	104000
	Common Stock (Lisa)	204000
	Retained Earnings, 1/1/12 (Lisa) (508000-54000)	454000
	Franchises	70000
	Investment in Lisa-Common Stock		580000
	Investment in Lisa-Preferred Stock		69000
	Noncontrolling Interest in Lisa, Inc. (balancing figure)		183000

Part B

Date	General journal	Debit	Credit
Dec 31, 2017	Bonds Payable (100000/2)	50000
	Interest Income (53465*6%)	3208
	Loss on Retirement of Bonds (82522/2)-53465	12204
	Discount on Bonds Payable (balancing figure)		6962
	Interest Expense (82522/2)*14%		5777
	Investment in Bonds of Lisa (53465-((50000*8%)-(53465*6%))		52673

Part C

Date	General journal	Debit	Credit
Dec 31, 2017	Gain on Transfer of Fixed Assets (128000-(104000-80000))	104000
	Accumulated Depreciation (balancing figure)		69600
	Depreciation Expense (12800-((104000-80000)/10)		10400
	Fixed Assets (128000-104000)		24000