Intercompany Transfer of Inventory
Pine Corporation acquired 70 percent of Bock Company’s voting common shares on January 1, 20X2, for $108,500. At that date, the noncontrolling interest had a fair value of $46,500 and Bock reported $70,000 of common stock outstanding and retained earnings of $30,000. The differential is assigned to buildings and equipment, which had a fair value $20,000 greater than book value and a remaining 10-year life, and to patents, which had a fair value $35,000 greater than book value and a remaining life of five years at the date of the business combination. Trial balances for the companies as of December 31, 20X3, are as follows:
Item | Pine Corporation | Bock Company | ||
Debit | Credit | Debit | Credit | |
Cash and Accounts Receivable | $ 15,400 |
| $ 21,600 |
|
Inventory | 165,000 |
| 35,000 |
|
Land | 80,000 |
| 40,000 |
|
Buildings and Equipment | 340,000 |
| 260,000 |
|
Investment in Bock Company Stock | 109,600 |
|
|
|
Cost of Goods Sold | 186,000 |
| 79,800 |
|
Depreciation Expense | 20,000 |
| 15,000 |
|
Interest Expense | 16,000 |
| 5,200 |
|
Dividends Declared | 30,000 |
| 15,000 |
|
Accumulated Depreciation |
| $140,000 |
| $ 80,000 |
Accounts Payable |
| 92,400 |
| 35,000 |
Bonds Payable |
| 200,000 |
| 100,000 |
Bond Premium |
|
|
| 1,600 |
Common Stock |
| 120,000 |
| 70,000 |
Retained Earnings |
| 127,900 |
| 60,000 |
Sales |
| 260,000 |
| 125,000 |
Other Income |
| 13,600 |
|
|
Income from Subsidiary |
| 8,100 |
|
|
| $962,000 | $962,000 | $471,600 | $471,600 |
On December 31, 20X2, Bock purchased inventory for $32,000 and sold it to Pine for $48,000. Pine resold $27,000 of the inventory during 20X3 and had the remaining balance in inventory at December 31, 20X3.
During 20X3, Bock sold inventory purchased for $60,000 to Pine for $90,000, and Pine resold all but $24,000 of its purchase. On March 10, 20X3, Pine sold inventory purchased for $15,000 to Bock for $30,000. Bock sold all but $7,600 of the inventory prior to December 31, 20X3. Assume Pine uses the fully adjusted equity method.
Required
a. Give all eliminating entries needed to prepare a full set of consolidated financial statements at December 31, 20X3, for Pine and Bock.
b. Prepare a three-part consolidation worksheet for 20X3.
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