Question

Problem 5-26 (LO 5-3, 5-4, 5-5, 5-7) On January 1, 2018, Sledge had common stock of $180,000 and retained earnings of $320,000. During that year, Sledge reported sales of $190,000, cost of goods sold of $100,000, and operating expenses of $46,000. On January 1, 2016, Percy, Inc., acquired 90 percent of Sledge's outstanding voting stock. At that date, $66,000 of the acquisition-date fair value was assigned to unrecorded contracts (with a 20-year life) and $26,000 to an undervalued building (with a 10-year remaining life) In 2017, Sledge sold inventory costing $14,700 to Percy for $21,000. Of this merchandise, Percy continued to hold $6,000 at year-end During 2018, Sledge transferred inventory costing $13,000 to Percy for $26,000. Percy still held half of these items at year-end. On January 1, 2017, Percy sold equipment to Sledge for $15,000. This asset originally cost $22,000 but had a January 1, 2017, book value of $10,200. At the time of transfer, the equipment's remaining life was estimated to be five years. W Percy has properly applied the equity method to the investment in Sledge. a. Prepare worksheet entries to consolidate these two companies as of December 31, 2018 b. Compute the net income attributable to the noncontrol ling interest for 2018 Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required B Required B Required A Prepare worksheet entries to consolidate these two companies as of December 31, 2018. (If transaction/event, select "No journal entry required" in the first account field.) no entry is required for a No Transaction Accounts Debit Credit Retained earnings 1 Cost of goods sold Equipment 2 2 Investment in Sledge Accumulated depreciation Common stock 3 3 Retained earnings Investment in Sledge Noncontrolling interest in Sledge 4 4. Contracts Buildings Investment in Sledge Noncontrolling interest in Sledge Equity in income of Sledge Investment in Sledge 5 5 Depreciation expense 6 6 Amortization expense Contracts Buildings 7 7 Sales Cost of goods sold Cost of goods sold 8 8 Inventory Accumulated depreciation 9 Depreciation expense Problem 5-26 (LO 5-3, 5-4, 5-5, 5-7) On January 1, 2018, Sledge had common stock of $180,000 and retained earnings of $320,000. During that year, Sledge reported sales of $190,000, cost of goods sold of $100,000, and operating expenses of $46,000. On January 1, 2016, Percy, Inc., acquired 90 percent of Sledge's outstanding voting stock. At that date, $66,000 of the acquisition-date fair value was assigned to unrecorded contracts (with a 20-year life) and $26,000 to an undervalued building (with a 10-year remaining life) In 2017, Sledge sold inventory costing $14,700 to Percy for $21,000. Of this merchandise, Percy continued to hold $6,000 at year-end. During 2018, Sledge transferred inventory costing $13,000 to Percy for $26,000. Percy still held half of these items at year-end. On January 1, 2017, Percy sold equipment to Sledge for $15,000. This asset originally cost $22,000 but had a January 1, 2017, book value of $10,200. 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. Prepare worksheet entries to consolidate these two companies as of December 31, 2018. b. Compute the net income attributable to the noncontrolling interest for 2018 a. Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required B Compute the net income attributable to the noncontrolling interest for 2018. Net income attributable to noncontrolling interest Required A Required B

Answer 1

Amortization of Excess Fair Value allocated to specified Assets Amortization per Remaining Useful life in Value As on 01/01/2016 (A) years (B) year (A/B) Assets Contract 66,000 20 3,300 Building 26,000 10 2,600 Total 92,000 5,900 Carrying Value of the specified assets as on 01/01/18 Accumulated Amortization for 2 years i.e. 2016-17 |(Amortization x 2 years) Carrying Value as on 01/01/18 (A-B) Value As on 01/01/2016 (A) (B) Assets Contract 66,000 6,600 59,400 Building 26,000 5,200 20,800 Total 92,000 80,200 Calculation of Deferred Profit on Intercompany Inventory Sold (Upstream) Ending Inventory Deferred Profit Transfer Price Gross Profit Profit % Cost [D (C/A)x100] (E) [A] [B] [C A-B] (F Ex D) Year 30% 6,000 2017 21,000 14,700 6,300 1,800 26,000 50% 2018 13,000 13,000 13,000 6,500

Calculation of Gain on Intercompany Sale of Equipment (Downstream) Original Cost (a) Book Value of Equipment Sold (b) Accumulated Depreciation (a-b) Sale price of Equipment (c) Gain on Sale of Equipment (c-b) Remaining Life in years Excess Amortization per year (4,800/5) Unamortized Gain (4,800-960) 22,000 10,200 11,800 15,000 4,800 960 3,840 Calculation of Equity Income from Subsidiary Net Income of Sledge in 2018 Sales 190,000 Cost of goods sold (100,000) (46,000) Operating expenses Net Income of Sledge in 2018 44,000 Add: Deferred Intercompany Inventory Profit beginning balance 1,800 (6,500) (5,900) Less: Deferred Intercompany Inventory Profit Ending Balance Less: Excess Amortization Adjusted Net Income of Sledge 33,400 Share of Percy in Net Income of Sledge (33,400x 90%) Add: Confirmed Gain on Equipment sale 30,060 X 960 Equity Income from Sledge 31,020

Entries Entries Accounts titles and Explanation Debit Credit S.No Retained Earnings, 01/01/18 (Sledge) 1*G 1,800 Cost of goods sold 1,800 (to remove intra-entity gross profit from beginning account balance) Equipment (22,000 15,000) Investment in Seldge Accumulated Depreciation (11,800 960) 2TA 7,000 3,840 10,840 (to adjust the equipment balance to the original cost (15,000) and accordingly adjust the accumulated Depreciation balance) Common Stock 3 S 180,000 Retained Earnings 01/01/18 (Sledge) (320,000-1,800) Investment in Sledge (180,000 318,200) x 90 % Noncontrolling interest in Sledge (180,000 318,200) x 10 % (to eliminate the subsidiary's stockholders' equity accounts after adjusting Retained Earnings from Entry *G and to recognize the noncontrolling interest balance as |1, 2018.) 318,200 448,380 49,820 of January 4 A Contract 59,400 Buildings 20,800 Investment in Sledge (80,200 x 90 %) Noncontrolling interest in Sledge (80,200 x 10 %) (to recognize acquisition-date fair value allocations adjusted for 2 years of amortization.) 72,180 8,020 Equity Income of Sledge 5 I 31,020 Investment in Sledge 31,020 (to remove the parent's equity method income)

Amortization Expense Depreciation expense 6 E 3,300 2,600 Contract 3,300 Building (to recognize 2018 excess amortization.) 2,600 Sales 7 TI 26,000 Cost of goods sold 26,000 |(to eliminate the intra-entity inventory tranfers during 2018) Cost of Goods sold 8 G 6,500 Inventory 6,500 (to remove the intra-entity gross profit from the ending account balances) Accumulated Depreciation Depreciation expenses (to eliminate the excess depreciation on 9 ED 960 960 equipment recorded at transfer price.) b. Net Income Attributable to Non Controlling Interest Net Income of Sledge in 2018 Sales 190,000 Cost of goods sold (100,000) Operating expenses (46,000) Net Income of Sledge in 2018 Add: Deferred Intercompany Inventory Profit beginning balance Less: Deferred Intercompany Inventory Profit Ending Balance 44,000 1,800 (6,500) (5,900) Less: Excess Amortization Adjusted Net Income of Sledge 33,400 Share of Non Controlling Interest in Income of Sledge (33,400 x 10%) 3,340