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.)

Answer 1

No	Entry	Accounts	Debit	Credit
A	1	Common stock	70000
		Retained earnings	64000
		Income from soda company	19460
		NCI in NI of soda company	9840
		Dividends declared		19000
		Investment in soda company		99960
		NCI in NA of soda company		44340
B	2	Amortization expense	8800
		Depreciation expense	2400
		Income from soda company		7840
		NCI in NI of soda company		3360
C	3	Buildings and equipment	22000
		Patents (8800*2)	17600
		Accumulated depreciation (2400*2)		4800
		Income from soda company		24360
		NCI in NI of soda company		10440
D	4	Accumulated depreciation	45000
		Buildings and equipment (85000-(20000*2)		45000
E	5	NCI in NA of soda company	3360
		Investment in soda company	7840
		Cost of goods sold		11200
F	6	NCI in NA of soda company	2040
		Investment in soda company	4760
		Inventory		6800
G	7	Sales (90000+28000)	118000
		Cost of goods sold		104100
		Inventory (10400+3500)		13900

Inventory = (45000-28000)*((45000-27000)/45000) = 7200

Book value calculations:
	NCI 30%	+	Pop corp. 70%	=	Common stock	+	Retained earnings
Beginning book value	40200		93800		70000		64000
+ net income	9600		22400				32000
- dividends	(5700)		(13300)				(19000)
Ending book value	44100		102900		70000		77000

Net income = 145000-83800-20000-9200 = 32000

Net income = 140000-81800-20000-7200

Adjustment to Basic consolidation entry
	NCI	Pop Corp.
Net income	9600	22400
+ Reverse GP deferral (Up) (28000*((45000-27000)/45000) =11200	3360	7840
- gross profit deferral (down) (7000*((28000-14000)/28000)		(3500)
- gross profit deferral (up) (26000*((90000-54000)/90000) =10400	(3120)	(7280)
Income to be eliminated	$9840	$19460
Ending book value	44100	102900
+ Reverse GP deferral (Up) (29000*((50000-30000)/50000) =11600	3360	7840
- gross profit deferral (down) (7000*((28000-14000)/28000)		(3500)
- gross profit deferral (up) (26000*((90000-54000)/90000) =10400	(3120)	(7280)
Adjusted book value	$44340	$99960