Pastel Corporation acquired a controlling interest in Somber Corporation in 20X5 for an amount equal to its underlying book value. At the date of acquisition, the fair value of the noncontrolling interest was equal to its proportionate share of the book value of Somber Corporation. In preparing a consolidated balance sheet worksheet at January 1, 20X9, Pastel's controller included the following elimination entry:

A note at the bottom of the consolidation worksheet at January 1, 20X9, indicates the equipment was purchased from a nonaffiliate on January 1, 20X1, for $120,000 and was sold to an affiliate on December 31, 20X8. The equipment is being depreciated on a 15 year straight-line basis. Somber reported stock outstanding of $300,000 and retained earnings of $200,000 at January 1, 20X9.
Somber reported net income of $25,000 and paid dividends of $6,000 for 20X9.

Required
a. What percentage ownership of Somber Corporation does Pastel hold?
b. Was the parent or subsidiary the owner prior to the intercompany sale of equipment? Explain.
c. What was the intercompany transfer price of the equipment on December 31, 20X8?
d. What amount of income will be assigned to the noncontrolling interest in the consolidated income statement for 20X9?
e. Assuming Pastel and Somber report depreciation expense of $15,000 and $9,000, respectively, for 20X9, what depreciation amount will be reported in the consolidated income statement for 20X9?
f. Give all remaining elimination entries needed at December 31, 20X9, to prepare a complete set of consolidated financialstatements.

Transcribed Image Text:

Equipment Investment in Somber Corp. Noncontrolling Interest 53,500 9,450 1,050 Accumulated Depreciation 64,000