Question

Patten Corporation acquired an 85% interest in Savage Company for $3,100,000 on January 1, 2011. On this date, the balances in Savage Company’s capital stock and retained earnings accounts were $2,000,000 and $700,000, respectively.
An examination of Savage Company’s books on this date revealed the following:


The remaining useful life of the plant and equipment is 10 years, and all the inventory was sold in 2011. The net income from Patten Corporation’s own operations was $950,000 in 2011 and $675,000 in 2012. Savage Company’s net income for the respective years was $110,000 and $180,000. No dividends were declared.

Required:
A. Prepare a Computation and Allocation Schedule for the difference between book value of equity and the value implied by the purchase price.
B. Prepare the consolidated statements workpaper eliminating entries for 2011 and 2012 in general journal form, under each of the following assumptions:
1. The cost method is used to account for the investment.
2. The partial equity method is used to account for the investment.
3. The complete equity method is used to account for the investment.
C. Calculate the controlling interest in consolidated net income for 2011 and2012.


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  • CreatedMarch 13, 2015
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