Question

On January 1, 2016, Monica Company acquired 70 percent of Young Company's outstanding common stock for $672,000. The fair value of the noncontrolling interest at the acquisition date was $288,000. Young reported stockholders' equity accounts on that date as follows Common stock-$10 par value Additional paid-in capital Retained earnings 300,000 60,000 480,000 In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $60,000. Any remaining excess acquisition-date fair value was allocated to a franchise agreement to be amortized over 10 years During the subsequent years, Young sold Monica inventory at a 20 percent gross profit rate. Monica consistently resold this merchandise in the year of acquisition or in the period immediately following. Transfers for the three years after this business combination was created amounted to the following Year 2016 2017 2018 Transfer Price $ 90,000 110,000 120,000 Inventory Remaining at Year-End (at transfer price) $17,000 19, 000 25,000 In addition, Monica sold Young several pieces of fully depreciated equipment on January 1, 2017, for $43,000. The equipment had originally cost Monica $64,000. Young plans to depreciate these assets over a 5-year period In 2018, Young earns a net income of $210,000 and declares and pays $60,000 in cash dividends. These figures increase the subsidiary's Retained Earnings to a $810,000 balance at the end of 2018 Monica employs the equity method of accounting. Hence, it reports $142,160 investment income for 2018 with an Investment account balance of $835,900. Under these circumstances, prepare the worksheet entries required for the consolidation of Monica Company and Young Company. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

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Consideration transferred			$ 672,000
Non Contorlling interest fair value			$ 288,000
Total Fair value			$ 960,000
Book value			$-840,000
Excess of Fair value			$ 120,000
Allocation:
Building			$    60,000	5 Years	$ 12,000
Franchise			$    60,000	10 Years	$    6,000
					$ 18,000
Upstream Inventory Transfer:
2017 Gross Profit deferred untill 2018	$19,000*20%		$      3,800
2018 Gross Profit deferred untill 2019	$25,000*30%		$      7,500
Equipment transfer Downstream:
Intra Entity gain on transfer			$    43,000
Year 2017 Excess Depreciation	$43,000/5 Years		$    -8,600
Intra Entity gain on 1st Jan 2018			$    34,400
Excess Depreciation for Year 2018	$43,000/5 Years		$      8,600
Entry *G
Accounts	Debit	Credit
Retained Earning-Young	$                3,800
Cost of goods sold		$         3,800
(To recognize intra entity gain deferred from previous year)
Entry *TA
Accounts	Debit	Credit
Retained Earning-Monica	$              34,400
Equipment (($64,000-$43,000)	$              21,000
Accumulated Depreciation ($64,000-$8,600)		$       55,400
(To return equipmen to Book value and remove intra entity gain)
Entry *C
Accounts	Debit	Credit
Investment in Young	$              98,140
Retained Earning-Monica		$       98,140
(To adjust Retained earning) Working below
Retained Earning- Young 31/12/2018 (Given)		$     810,000
Elimination of Income and Dividend of Young ($210,000-$60,000)		$   -150,000
Retained Earning- Young 31/12/2017		$     660,000
Removal of Intra Entity gross profit (Entry *G)		$        -3,800
Recognized Retained Earning of Young 31/12/2017		$     656,200
Retained Earning at date of acquisition		$   -480,000
Increase in Retained Earning		$     176,200
Ownership Percentage		70%
Income accrual to be recognized		$     123,340
Excess amortization of 2016-2017 ($18,000*70%*2 Years)		$     -25,200
		$       98,140
Entry S
Accounts	Debit	Credit
Common Stock-Young	$            300,000
Retained Earning-Young	$              60,000
Retained Earning-1/1/18	$            656,200
Investment in Young		$     711,340
NCI in NA of Young		$     304,860
(To record basic elimination entry)
Entry A
Accounts	Debit	Credit
Franchise Agreement	$              48,000
Building	$              36,000
Investment in Young		$       58,800
NCI in NA of Young		$       25,200
(To record excess of fair value allocation)
Entry I
Accounts	Debit	Credit
Dividend Income	$              42,000
Dividend Declared		$       42,000
(To eliminate intra-entity dividend declaration) $60,000*70%
Entry E
Accounts	Debit	Credit
Depreciation Expense	$              12,000
Amortization Expense	$                6,000
Franchise Agreement		$         6,000
Buildings		$       12,000
(To recognize current year amortization expense)
Entry TI
Accounts	Debit	Credit
Sales	$            120,000
Cost of goods sold		$     120,000
(To remove intra entity transfer)
Entry G
Accounts	Debit	Credit
Cost of goods sold	$                7,500
Inventory		$         7,500
(To defer intra entity gross profit to next year)
Entry ED
Accounts	Debit	Credit
Accumulated Depreciation	$                8,600
Depreciation Expense		$         8,600
(To remove current year dep on transferred equipment)
Non Conrolling interest share of Consolidate Income:
Reported Net inocme of Young		$     160,000
Excess fair value amortization		$     -18,000
Recognition of Year 2017 intra entity gross profit		$         3,800
Deferral of Year 2018 intra entity gross profit		$        -7,500
Adjusted Net income of Young		$     138,300
Ownership percentage		30%
Net income attributable to non - controlling interest		$       41,490