Question

Pizza Corporation acquired 80 percent ownership of Slice Products Company on January 1, 20X1, for $155,000. On that date, the fair value of the noncontrolling interest was $38,750, and Slice reported retained earnings of $46,000 and had $99,000 of common stock outstanding. Pizza has used the equity method in accounting for its investment in Slice. Trial balance data for the two companies on December 31, 20X5, are as follows:

Additional Information

1. On the date of combination, the fair value of Slice's depreciable assets was $48,750 more than book value. The accumulated depreciation on these assets was $10,000 on the acquisition date. The differential assigned to depreciable assets should be written off over the following 10-year period.

2. There was $14,000 of intercorporate receivables and payables at the end of 20X5.

Required:
a. Prepare all journal entries that Pizza recorded during 20X5 related to its investment in Slice. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b. Prepare all consolidation entries needed to prepare consolidated statements for 20X5. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

c. Prepare a three-part worksheet as of December 31, 20X5.(Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)

Answer 1

Part A

No.	Account titles and explanation	debit	credit
1.	Investment in Slice Products Company	32800
	Income from Slice Products Company ((106000-46000-13000-6000)*80%)		32800
	(to record Pizza Corporation’s 80% Slice Products Company 's 20X1 income
2.	Cash	15040
	Investment in Slice Products Company (18800*80%)		15040
	(To record Pizza Corporation’s 80% share of Slice Products Company 's 20X1 dividend)
3.	Income from Slice Products Company	3900
	Investment in Slice Products Company (48750/10*80%)		3900
	(Record amortization of excess acquisition price)

Part B

Book Value Calculations:

	NCI 20%	+	Master Corp. 80%	=	Common Stock	+	Retained Earnings
Original book value	37600	+	150400	=	99000	+	89000
+ Net Income	8200	+	32800				41000
- Dividends	(3760)	+	(15040)				(18800)
Ending book value	42040	+	168160	=	99000	+	111200

Basic elimination entry

Account titles and explanation	debit	credit
Common stock	99000
Retained earnings	89000
Income from Slice Products Company	32800
NCI in NI of Slice Products Company	8200
Dividends declared		18800
Investment in Slice Products Company		168160
NCI in NA of Slice Products Company		42040

Excess Value (Differential) Calculations:

	NCI 20%	+	Master Corp. 80%	=	Buildings & Equipment	+	Acc. Depr.
Beginning balance	8200	+	32800	=	48750		(7750)
Changes	(975)		(3900)				(4875)
Ending balance	7225		28900		48750		(12625)

Amortized excess value reclassification entry:

Account titles and explanation	debit	credit
Depreciation expense	4875
Income from Slice Products Company		3900
NCI in NI of Slice Products Company		975

Excess value (differential) reclassification entry:

Account titles and explanation	debit	credit
Buildings & Equipment	48750
Acc. Depr.		12625
Investment in Slice Products Company		28900
NCI in NI of Slice Products Company		7225

Eliminate intercompany accounts:

Account titles and explanation	debit	credit
Accounts payable	14000
Cash and receivables		14000

Part C

	Pizza corporation	Slice products company	Elimination entries		Consolidated
			Dr	Cr.
Income Statement
Sales	209000	106000			315000
Less: COGS	(114000)	(46000)			(160000)
Less: Depreciation Expense	(23000)	(13000)	4875		(40875)
Less: Inventory Losses	(13000)	(6000)			(19000)
Income from Slice Products Company	28900		32800	3900	0
Consolidated Net Income	87900	41000	37675	3900	95125
NCI in Net Income			8200	(975)	(7225)
Controlling Interest in Net Income	87900	41000	45875	2925	87900
Statement of Retained Earnings
Beginning Balance	312000	89000	89000		312000
Net Income	87900	41000	45875	2925	87900
Less: Dividends Declared	(40000)	(18800)		18800	(40000)
Ending Balance	359900	111200	134875	21725	359900
Balance Sheet
Cash and Receivables	82000	66000		14000	134000
Inventory	278000	101000			379000
Land	83000	83000			166000
Buildings & Equipment	516000	151000	48750		715750
Less: Accumulated Depreciation	(204000)	(91000)		12625	(307625)
Investment in Slice Products Company	187660			187660	0
Total Assets	942660	310000	48750	214285	1087125
Accounts Payable	47000	15000	14000		48000
Notes Payable	237760	84800			322560
Common Stock	298000	99000	99000		298000
Retained Earnings	359900	111200	134875	21725	359900
NCI in NA of Slice Products Company				49265	49265
Total Liabilities & Equity					1077725