Question

On January 1, 2019, Penguin Corporation bought 80% of the stock of Sea Gull Corporation for $700,000. The Balance Sheets of the two companies immediately after the acquisition (January 1, 2019) of Sea Gull Corp. showed the following amounts:

PenguinSea Gull as Accounts Receivable Inventory Land Buildings & Equipment - Net Investment in Sea Gull $ 140,000 $ 100,000 110,000 30,000 500,000 10,000 400,000 140,000 1,000,000 420,000 700.000 Total Assets 2,850,000 700,000 Accounts Payable Long-Term Liabilities Common Stock Additional Paid in Capital Retained Earnings 410,000 80,000 1,090,000 20,000 1,000,000 400,000 100,000 350,000 100,000 Total Liabilities and Stockholders' Equity $2,850,000 700,000

On the date of acquisition, the Book Value of Sea Gull equaled its Fair Market Value, except for land that had a fair market value of $200,000, the fair value of previously unrecorded identifiable intangibles (2-year life) of Sea Gull was $40,000, and the NonControlling Interest's fair value is $175,000. Penguin uses the complete equity method to record its investment in Sea Gull. During 2019, Penguin found that a $7,000 impairment of goodwill took place during 2019. The following is the trial balance data for Penguin and Sea Gull on December 31, 2019:

Required:

A. Prepare the journal entries Penguin made during 2019 related to its investment in Sea Gull.

B. Prepare the consolidation eliminating entries needed to be made to consolidate the two companies at the end of 2019. *Also identify which of these eliminating entries are exactly the same as those that would have been done if a consolidation had been immediately done after the acquisition.

C. Prepare the consolidation working paper. Show all necessary Elimination entries in their proper columns.

Answer 1

A. Prepare the journal entries Penguin made during 2019 related to its investment in Sea Gull.

B. Prepare the consolidation eliminating entries needed to be made to consolidate the two companies at the end of 2019. *Also identify which of these eliminating entries are exactly the same as those that would have been done if a consolidation had been immediately done after the acquisition.

C. Prepare the consolidation working paper. Show all necessary Elimination entries in their proper columns.

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. Consideration transferred for 80% Non controlling interest fair value Total fair value Less: Book valu Excess fair value Allocation 700,000 5 175,000 875,000 -600,000 5 275,000 Annual Depreciation S 60,000 Intangibles Goodwill 40,000 2 Year 20,000 175,000 7,000 Impairment Event Account Debit re Investment in Seagull Co 120,000 Income from Seagull Co (To record Penguin share from Seagull Co income) 120,000 Cash 40,000 Investment in Seagull Co To record dividend income from Seaguli) $ 40,000 Income from Seagull Co 5 21,600 Investment in Seagull Co (To record amortization of exces acquisition price) 21,600 Common Stock Additional Paid in capital Retained Earning Income from Seagull Co NCI in NI of Seagull Co $400,000 5100,000 100,000 120,000 30,000 Dividends declared Investment in Seagull Co NCI in NA of Seagll co 50,000 $ 560,000 140,000 To record basic consolidation entry) Common Stock Additional Paid in capital Retained earning 400,000 100,000 100,000 Penguin NCI 600,000 480,000 $120,000 5150,000 120,000 $ Add Net Income Less Dividend 30,000 50,000 $ -40,000 $ -10,000 $560,000 $140,000 Depreciation Expense Goodwill Impairment Loss $20,000 7,000 Income from Seagull Co $ 21,600 5,400 NCI in NI of Seagull Co To record amortized excess value reclass) Building and Equipment Land Goodwill 40,000 60,000 168,000 Accumultaed Depreciation Investment in Seagull Co NCI in NA of Seagull co S 20,000 198,400 49,600 (To record excess value reclass) Accumulated Depreciation $40,000 Building and Equipment 40,000 To record option dep elimination)

Penguin Seagull Elimination Entries Consolidated Income Statement S 910,000 $ 450,000 1,360,000 S770,000 $ -550,000 $-220,000 $ 130,000 $ -50,000 $ $ 20,000 $ -30,000 $ 98,400 Less: COGS Less: Depreciation Expense 20,000 $-200,000 $50,000 $7,000 Less: Other Expense Less: Impairment Loss Income from Seagull Co Consolidated Net Income NCI in Net Income Controlling Interest in Net Income 120,000 $ 308,400 $ 150,000 $147,000$ 21,600 $ 333,000 5,400 24,600 27,000 $ 308,400 30,000 $ 308,400 $150,000 $ 177,000$ Statement of Retained Earnings Beginning Balance Net Income Less: Dividends Declared Ending Balance 350,000 $ 100,000 $ 100,000 308,400 $ 150,000 $ 177,000 $ -100,000 $ -50,000 $350,000 27,000 308,400 50,000 $-100,000 77,000 $ 558,400 $ 558,400 $ 200,000 $277,000 $ Balance Sheet S 290,000 $ 100,000 $ 210,000 $ 190,000 S 400,000 $50,000 $ 300,000 $ 140,000 $ $1,100,000 S 330,000 $ S390,000 $ 400,000 450,000 $500,000 40,000 $ 1,430,000 20,000 $20,000 Receivables Inventory 60,000 40,000 S 40,000 S ings & Equipment Less: Accumulated Depreciation Investment in Seagull co s 758,400 560,000 $ 198,400 Goodwill $168,000 $168,000 $3,058,400 $ 810,000 $308,000 $ 818,400 3,358,000 S500,000 $1,110,000 Total Assets Accounts Payable 400,000 $ 100,000 $ Long term Notes Payable Common Stock Additional Paid in capital Retained Earnings NCI in NA of Seagull Co $1,100,000 $ 10,000 1,000,000 $ 400,000 $ 400,000 $ 1,000,000 S 100,000 $558,400 $ 200,000 $ 277,000 $ 77,000 $ 558,400 140,000 189,600 49,600 Total Liabilities & Equity $3,058,400 810,000 $77,000 $ 266,600$ 3,358,000