Prime Company holds 80 percent of Lane Company's stock, acquired on January 1, 20X2, for $160,000. On the date of acquisition, Lane reported retained earnings of $50,000 and $100,000 of common stock outstanding, and the fair value of the noncontrolling interest was $40,000. Prime uses the fully adjusted equity method in accounting for its investment in Lane.
Trial balance data for the two companies on December 31, 20X7, are as follows:

Additional Information
1. At the date of combination, the book values and fair values of Lane’s separately identifiable assets and liabilities were equal. The full amount of the increased value of the entity was attributed to goodwill. At December 31, 20X6, the management of Prime reviewed the amount attributed to goodwill as a result of its purchase of Lane stock and recognized an impairment loss of $18,000. No further impairment occurred in 20X7.
2. On January 1, 20X5, Lane sold land for $18,000 that had cost $8,000 to Prime.
3. On January 1, 20X6, Prime sold to Lane equipment that it had purchased for $75,000 on January 1, 20X1. The equipment has a total 15-year economic life and was sold to Lane for $70,000. Both companies use straight-line depreciation.
4. Intercompany receivables and payables total $4,000 on December 31, 20X7.

a. Prepare a reconciliation between the balance in Prime’s Investment in Lane Company Stock account reported on December 31, 20X7, and Lane’s book value.
b. Prepare all worksheet elimination entries needed as of December 31, 20X7, and complete a three-part consolidation worksheet for20X7.

  • CreatedMay 23, 2014
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