Comprehensive Problem: Consolidation in Subsequent Period
Thompson Company spent $240,000 to acquire all of Lake Corporation’s stock on January 1, 20X2. On December 31, 20X4, the trial balances of the two companies were as follows:
Item | Thompson Company | Lake Corporation | ||
Debit | Credit | Debit | Credit | |
Cash | $ 74,000 |
| $ 42,000 |
|
Accounts Receivable | 130,000 |
| 53,000 |
|
Land | 60,000 |
| 50,000 |
|
Buildings and Equipment | 500,000 |
| 350,000 |
|
Investment in Lake Corporation Stock | 268,000 |
|
|
|
Cost of Services Provided | 470,000 |
| 130,000 |
|
Depreciation Expense | 35,000 |
| 18,000 |
|
Other Expenses | 57,000 |
| 60,000 |
|
Dividends Declared | 30,000 |
| 12,000 |
|
Accumulated Depreciation |
| $ 265,000 |
| $ 93,000 |
Accounts Payable |
| 71,000 |
| 17,000 |
Taxes Payable |
| 58,000 |
| 60,000 |
Notes Payable |
| 100,000 |
| 85,000 |
Common Stock |
| 200,000 |
| 100,000 |
Retained Earnings |
| 292,000 |
| 120,000 |
Service Revenue |
| 610,000 |
| 240,000 |
Income from Subsidiary |
| 28,000 |
|
|
| $1,624,000 | $1,624,000 | $715,000 | $715,000 |
Lake Corporation reported retained earnings of $100,000 at the date of acquisition. The difference between the acquisition price and underlying book value is assigned to buildings and equipment with a remaining economic life of 10 years from the date of acquisition. At December 31, 20X4, Lake owed Thompson $2,500 for services provided.
Required
a.Give all journal entries recorded by Thompson with regard to its investment in Lake during 20X4.
b.Give all eliminating entries required on December 31, 20X4, to prepare consolidated financial statements.
c.Prepare a three-part consolidation worksheet as of December 31, 20X4.
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