Consolidation Involving a Midyear Purchase
Famous Products Corporation acquired 90 percent ownership of Sanford Company on October 20, 20X2, through an exchange of voting shares. Famous Products issued 8,000 shares of its $10 par stock to acquire 27,000 shares of Sanford’s $5 par stock. The market value of shares issued by Famous Products was $247,500. At that date, the fair value of the noncontrolling interest was $27,500. Trial balances of the two companies on December 31, 20X2, are as follows:
| Famous ProductsCorporation | Sanford Company | ||
| Debit | Credit | Debit | Credit |
Cash | $ 85,000 |
| $ 50,000 |
|
Accounts Receivable | 100,000 |
| 60,000 |
|
Inventory | 150,000 |
| 100,000 |
|
Buildings and Equipment | 400,000 |
| 340,000 |
|
Investment in Sanford Stock | 252,000 |
|
|
|
Cost of Goods Sold | 305,000 |
| 145,000 |
|
Depreciation Expense | 25,000 |
| 20,000 |
|
Other Expense | 14,000 |
| 25,000 |
|
Dividends Declared | 40,000 |
| 30,000 |
|
Accumulated Depreciation |
| $ 105,000 |
| $ 65,000 |
Accounts Payable |
| 40,000 |
| 50,000 |
Taxes Payable |
| 70,000 |
| 55,000 |
Bonds Payable |
| 250,000 |
| 100,000 |
Common Stock |
| 200,000 |
| 150,000 |
Additional Paid-In Capital |
| 167,500 |
|
|
Retained Earnings |
| 135,000 |
| 100,000 |
Sales |
| 390,000 |
| 250,000 |
Income from Sanford Co. |
| 13,500 |
|
|
Totals | $1,371,000 | $1,371,000 | $770,000 | $770,000 |
For 20X2, before acquisition, Sanford reported sales of $205,000, cost of goods sold of $126,000, depreciation of $16,000, and other expenses of $18,000. Sanford paid dividends of $20,000 in April and $10,000 in November of 20X2. Famous Products paid dividends of $40,000 in 20X2. Famous Products uses the equity method in accounting for its investment in Sanford.
Required
a.Give alljournal entries recorded by Famous Products during 20X2 that relate to its investment in Sanford.
b.Give the worksheet elimination entries needed on December 31, 20X2, to prepare consolidated financial statements.
c.Prepare a three-part consolidation worksheet as of December 31, 20X2.
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