Power Corporation acquired 75 percent of Best Company’s ownership on January 1, 20X8, for $96,000. At that date, the fair value of Best’s buildings and equipment was $20,000 more than book value. Buildings and equipment are depreciated on a 10-year basis. Although goodwill is not amortized, the management of Power concluded at December 31, 20X8 that goodwill involved in its purchase of Best shares had been impaired and the correct carrying value was $2,500. Trial balance data for Power and Best on December 31, 20X8, are as follows:
Required
- Give all eliminating entries needed to prepare a three-part consolidation workpaper as of December 31, 20X8.
- Prepare a three-part consolidation workpaper for 20X8 in good form.
Consolidation Workpaper at End of First Year of Ownership
- Eliminating entries:
| E(1) | Income from Subsidiary | 16,500 | ||
| Dividends Declared | 12,000 | |||
| Investment in Best Company Stock | 4,500 | |||
| Eliminate income from subsidiary. | ||||
| E(2) | Income to Noncontrolling Interest | 6,000 | ||
| Dividends Declared | 4,000 | |||
| Noncontrolling Interest | 2,000 | |||
| Assign income to noncontrolling interest. | ||||
| E(3) | Common Stock — Best Company | 60,000 | ||
| Retained Earnings, January 1 | 40,000 | |||
| Differential | 21,000 | |||
| Investment in Best Company Stock | 96,000 | |||
| Noncontrolling Interest | 25,000 | |||
| Eliminate beginning investment balance. | ||||
| E(4) | Buildings and Equipment | 15,000 | ||
| Goodwill | 6,000 | |||
| Differential | 21,000 | |||
| Assign beginning differential. | ||||
| E(5) | Depreciation Expense | 1,500 | ||
| Accumulated Depreciation | 1,500 | |||
| Amortize differential: | ||||
| $1,500 = $15,000 / 10 years | ||||
| E(6) | Goodwill Impairment Loss | 3,500 | ||
| Goodwill | 3,500 | |||
| Write down goodwill for impairment. | ||||
| b. | Power Corporation and Best Company
Consolidation Workpaper December 31, 20X8
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| Power | Best | Eliminations | Consol- | |||
| Item | Corp. | Co. | Debit | Credit | idated | |
| Sales | 260,000 | 180,000 | 440,000 | |||
| Income from Subsidiary | 16,500 | (1) 16,500 | ||||
| Credits | 276,500 | 180,000 | 440,000 | |||
| Cost of Goods Sold | 125,000 | 110,000 | 235,000 | |||
| Wage Expense | 42,000 | 27,000 | 69,000 | |||
| Depreciation Expense | 25,000 | 10,000 | (5) 1,500 | 36,500 | ||
| Interest Expense | 12,000 | 4,000 | 16,000 | |||
| Other Expenses | 13,500 | 5,000 | 18,500 | |||
| Goodwill Impairment Loss | (6) 3,500 | 3,500 | ||||
| Debits | (217,500) | (156,000) | (378,500) | |||
| 61,500 | ||||||
| Income to Noncon- | ||||||
| trolling Interest | (2) 6,000 | (6,000) | ||||
| Net Income, | ||||||
| carry forward | 59,000 | 24,000 | 27,500 | 55,500 | ||
| Ret. Earnings, Jan. 1 | 102,000 | 40,000 | (3) 40,000 | 102,000 | ||
| Net Income, from above | 59,000 | 24,000 | 27,500 | 55,500 | ||
| 161,000 | 64,000 | 157,500 | ||||
| Dividends Declared | (30,000) | (16,000) | (1) 12,000 | |||
| (2) 4,000 | (30,000) | |||||
| Ret. Earnings, Dec. 31, | ||||||
| carry forward | 131,000 | 48,000 | 67,500 | 16,000 | 127,500 | |
| Cash | 47,500 | 21,000 | 68,500 | |||
| Accounts Receivable | 70,000 | 12,000 | 82,000 | |||
| Inventory | 90,000 | 25,000 | 115,000 | |||
| Land | 30,000 | 15,000 | 45,000 | |||
| Buildings and Equipment | 350,000 | 150,000 | (4) 15,000 | 515,000 | ||
| Investment in Best | ||||||
| Company Stock | 100,500 | (1) 4,500 | ||||
| (3) 96,000 | ||||||
| Differential | (3) 21,000 | (4) 21,000 | ||||
| Goodwill | (4) 6,000 | (6) 3,500 | 2,500 | |||
| Debits | 688,000 | 223,000 | 828,000 | |||
| Power | Best | Eliminations | Consol- | ||
| Item | Corp. | Co. | Debit | Credit | idated |
| Accum. Depreciation | 145,000 | 40,000 | (5) 1,500 | 186,500 | |
| Accounts Payable | 45,000 | 16,000 | 61,000 | ||
| Wages Payable | 17,000 | 9,000 | 26,000 | ||
| Notes Payable | 150,000 | 50,000 | 200,000 | ||
| Common Stock | |||||
| Power Corporation | 200,000 | 200,000 | |||
| Best Company | 60,000 | (3) 60,000 | |||
| Retained Earnings, | |||||
| from above | 131,000 | 48,000 | 67,500 | 16,000 | 127,500 |
| Noncontrolling | |||||
| Interest | (2) 2,000 | ||||
| (3) 25,000 | 27,000 | ||||
| Credits | 688,000 | 223,000 | 169,500 | 169,500 | 828,000 |
