Question

On January 1, 2011, Pump Company acquired all the outstanding common stock of Sound Company for $556,000 in cash. Financial data relating to Sound Company on January 1, 2011, are presented here:


Sound Company would expect to pay 10% interest to borrow long-term funds on the date of acquisition. During 2011, Sound Company wrote its receivables down by $10,690 and recorded a corresponding loss. Sound Company accounts for its inventories at lower of FIFO cost or market. Its buildings and equipment had a remaining estimated useful life on January 1, 2011, of 10 years and years, respectively. Sound Company reported net income of $80,000 and declared no dividends in 2011.

Required:
A. Prepare in general journal form the December 31, 2011, workpaper entries necessary to eliminate the investment account and to allocate and depreciate the difference between book value and the value implied by the purchase price.
B. Assume that Pump Company’s net income from independent operations in 2011 amounts to $500,000. Calculate the controlling interest in consolidated net income for2011.


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  • CreatedMarch 13, 2015
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