Question

Pizza Corporation acquired 80 percent ownership of Slice Products Company on January 1, 20X1, for $148,000. On that date, the fair value of the noncontrolling interest was $37,000, and Slice reported retained earnings of $42,000 and had $96,000 of common stock outstanding. Pizza has used the equity method in accounting for its investment in Slice.

Trial balance data for the two companies on December 31, 20X5, are as follows:
  

	Pizza Corporation						Slice Products Company
Item	Debit			Credit			Debit			Credit
Cash & Receivables	$	88,000					$	82,000
Inventory		272,000						91,000
Land		85,000						85,000
Buildings & Equipment		501,000						162,000
Investment in Slice Products Company		182,480
Cost of Goods Sold		115,000						42,000
Depreciation Expense		25,000						15,000
Inventory Losses		15,000						6,000
Dividends Declared		49,000						20,400
Accumulated Depreciation				$	197,000					$	105,000
Accounts Payable					49,000						17,000
Notes Payable					243,840						93,400
Common Stock					295,000						96,000
Retained Earnings					309,000						86,000
Sales					208,000						106,000
Income from Slice Products Company					30,640
	$	1,332,480		$	1,332,480		$	503,400		$	503,400

Additional Information

1. On the date of combination, the fair value of Slice's depreciable assets was $47,000 more than book value. The accumulated depreciation on these assets was $10,000 on the acquisition date. The differential assigned to depreciable assets should be written off over the following 10-year period.
2. There was $11,000 of intercorporate receivables and payables at the end of 20X5.

Required:
a. Prepare all journal entries that Pizza recorded during 20X5 related to its investment in Slice.


b. Prepare all consolidation entries needed to prepare consolidated statements for 20X5.


c. Prepare a three-part worksheet as of December 31, 20X5.

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you $148,000 Consideration transferred for 80% $37,000 Non controlling interest fair value $185,000 Total fair value $-138,000 Less: Book value $ 47,000 Excess fair value Annual Depreciation Allocation: Life $47,000 10 year $ Building and Equipment 4,700 Debit Credit Event Account Investment in Slice Co ($43,000*80%) $ 34,400 а Income from Slice Co 34,400 (To record Pizza share from Slice Co income) b Cash 16,320 Investment in Slice Co 16,320 (To record dividend income from slice) Income from Slice Co 3,760 C $ Investment in Slice Co 3,760 (To record amortization of exces acquisition price) $ d Common Stock 96,000 Retained Earning 86,000 Income from Slice Co 34,400 NCI in NI of Slice Co 8,600 $ 20,400 Dividends declared $163,680 Investment in Slice Co $40,920 NCI in NA of Slice co (To record basic consolidation entry) Common Stock 96,000 Retained earning 86,000 Pizza NCI $182,000 $ 145,600 $ 36,400 $43,000 $34,400 $ $ -20,400 $ -16,320 $ $ 163,680 $ Add Net Income 8,600 Less Dividend -4,080 40,920 Depreciation Expense 4,700 e $ 3,760 Income from Slice Co NCI in NI of Slice Co $ 940 (To record amortized excess value reclass) $47,000 f Building and Equipment Accumultaed Depreciation $ 23,500 Investment in Slice Co S 18,800 NCI in NA of Slice co 4,700 (To record excess value reclass) Accounts Payable 11,000 ge $11,000 Cash and Receivable (To eliminate intra com accounts)

Pizza Slice Elimination Entries Consolidated DR CR Income Statement $ 208,000 $ 106,000 $-115,000 $-42,000 $ -25,000 $ -15,000 $ $ 15,000 $ $314,000 $ -157,000 Sales Less: COGS $ Less: Depreciation Expense 4,700 44,700 $ Less: Inventory Losses -6,000 -21,000 $ 34,400$ Income from Slice Co 3,760 $ 30,640 $83,640 $43,000 $ Consolidated Net Income 3,760 $ 940 $ 39,100$ 91,300 $ 43,000 $ NCI in Net Income 8,600 -7,660 Controlling Interest in Net Income $ 83,640 4,700 $ 47,700 83,640 Statement of Retained Earnings 309,000 $ 86,000 $ Beginning Balance 86,000 309,000 $ 83,640 $43,000 $ 47,700 $ 4,700 $ Net Income 83,640 $49,000 $ -20,400 343,640 108,600 $ $ Less: Dividends Declared 20,400 $ -49,000 Ending Balance 133,700 $ 25,100$ 343,640 Balance Sheet 88,000 $ 82,000 Cash and Receivables 11,000 $ 159,000 $ 272,000 $ 91,000 85,000 85,000 Inventory 363,000 $ Land 170,000 $501,000 $ 162,000 $ $ Buildings & Equipment Less: Accumulated Depreciation 47,000 $ 710,000 23,500 $325,500 163,680 $ $-197,000 $ 105,000 $182,480 $ Investment in Slice co $ 18,800 $931,480 $ 315,000 $ 216,980 1,076,500 Total Assets 47,000 $ $49,000 17,000 $ $ 243,840 $ 93,400 $ 295,000 $ 96,000 $ $343,640 $ 108,600 $ Accounts Payable $ 11,000 55,000 Notes Payable $ 337,240 $ Common Stock 96,000 295,000 133,700 $ $ Retained Earnings 25,100 $ 343,640 NCI in NA of Slice Co. 40,920 $ 45,620 4,700 $ 931,480 $ 315,000 $ 70,720 1,076,500 Total Liabilities & Equity 240,700 $