Hardtack Bread Company holds 70 percent of the common shares of Custom Pizza Corporation. Trial balances for the two companies on December 31, 20X7, are as follows:

At the beginning of 20X7, Hardtack held inventory purchased from Custom Pizza containing unrealized profits of $10,000. During 20X7, Hardtack purchased $120,000 of inventory from Custom Pizza and on December 31, 20X7, had goods on hand containing $25,000 of unrealized intercompany profit. On December 31, 20X7, Hardtack sold equipment to Custom Pizza for $65,000. Hardtack had purchased the equipment for $150,000 and had accumulated depreciation of $100,000 on it at the time of sale. The companies file separate tax returns and are subject to a 40 percent income tax rate on all taxable income. Intercompany dividends are 80 percent exempt from taxation.

a. Prepare all elimination entries needed as of December 31, 20X7, to prepare consolidated financial statements for Hardtack Bread Company and its subsidiary.
b. Prepare a three-part consolidation worksheet for20X7.

  • CreatedMay 23, 2014
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