Question: Pearson Company purchased a 100 interest in Sanders Company and

Pearson Company purchased a 100% interest in Sanders Company and a 90% interest in Taylor Company on January 2, 2011, for $800,000 and $1,300,000, respectively. The account balances and fair values of the acquired companies on the acquisition date were as follows:

Sanders Company’s equipment has a remaining useful life of 10 years. Two-thirds of Taylor
Company’s inventory was sold in 2011, and the rest was sold in the following year. In 2011, Sanders
Company reported net income of $500,000 and declared dividends of $100,000. Taylor Company’s net income and declared dividends for 2011 were $800,000 and $200,000, respectively.

A. Prepare in general journal form the entries on the books of Pearson Corporation to ac-count for its investments in 2011.
B. Prepare the elimination entries necessary in the consolidated statements workpaper for the year ended December 31,2011.

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