Question

On January 1, 2018, Sledge had common stock of $340,000 and retained earnings of $480,000. During that year, Sledge reported sales of $350,000, cost of goods sold of $180,000, and operating expenses of $62,000.

On January 1, 2016, Percy, Inc., acquired 70 percent of Sledge's outstanding voting stock. At that date, $82,000 of the acquisition-date fair value was assigned to unrecorded contracts (with a 20-year life) and $42,000 to an undervalued building (with a 10-year remaining life).

In 2017, Sledge sold inventory costing $24,050 to Percy for $37,000. Of this merchandise, Percy continued to hold $6,000 at year-end. During 2018, Sledge transferred inventory costing $23,100 to Percy for $42,000. Percy still held half of these items at year-end.

On January 1, 2017, Percy sold equipment to Sledge for $23,000. This asset originally cost $38,000 but had a January 1, 2017, book value of $13,400. At the time of transfer, the equipment's remaining life was estimated to be five years.

Percy has properly applied the equity method to the investment in Sledge.

1. Prepare worksheet entries to consolidate these two companies as of December 31, 2018.
2. Compute the net income attributable to the noncontrolling interest for 2018.
   Required A Required B Prepare worksheet entries to consolidate these two companies as of December 31, 2018. (If no entry is re select "No journal entry required" in the first account field.) view transaction list Consolidation Worksheet Entries 2 3 4 5 6 7 8 9 Prepare Entry "G to remove the intra-entity gross profit from the beginning account balances. Note: Enter debits before credits. Transaction Accounts Debit Credit Record entry Clear entry view consolidation entries
   

Answer 1

No.	Entry	General journal	Debit	Credit
1	Entry *G	Retained Earnings	3900
		Cost of goods sold (24050/37000)*6000		3900
		To remove intra-entity gross profit from beginning account balances.
2	Entry *TA	Equipment	12000
		Investment in sledge (23000-13400)-((23000-13400)/5)	7680
		Accumulated depreciation (38000-13400)-((38000-13400)/5)		19680
		To adjust the equipment balance to original cost and to adjust accumulated depreciation to the correct consolidated January 1, 2018 balance
3	Entry S	Common stock	340000
		Retained earnings (480000-3900)	476100
		Investment in sledge (90%)		734490
		Noncontrolling interest in Sledge, 1/1/18 (10%)		81610
		To eliminate subsidiary's stockholders' equity accounts and recognize noncontrolling interest balance as of January 1, 2018
4	Entry A	Contacts (82000-(82000/20*2)	73800
		Buildings (42000-(4200/10*2)	41160
		Investment in sledge (90%)		103464
		Non-controlling interest in sledge (10%)		11496
		To recognize acquisition-date fair value allocations adjusted for 2 years of amortization
5	Entry I	Equity income in sledge (((350000-180000-62000)+3900-((42000-23100)/42000*11496)-(4100+4200))*90%)+((23000-13400)/5)	90504
		Investment in sledge		90504
		To remove parent’s recognized intra-entity income using equity method
6	Entry E	Depreciation expense (42000/10)	4200
		Amortization expense (82000/20)	4100
		Contacts		4200
		Buildings		4100
		To recognize 2018 excess amortizations
7	Entry TI	Sales	42000
		Cost of goods sold		42000
		To eliminate intra-entity inventory transfers during 2018
8	Entry G	Cost of goods sold ((42000-23100)/42000*11496)	5173
		Inventory		5173
		To remove unrealized gross profit from ending account balances.
9	Entry ED	Accumulated depreciation ((23000-13400)/5)	1920
		Depreciation expense		1920
		To eliminate excess depreciation on equipment recorded at transfer price.

Part B

Net income attributed to NCI

$9843

Net income attributable to noncontrolling interest = (((350000-180000-62000)+3900-((42000-23100)/42000*11496)-(4100+4200))*10%) = $9843