Question

Randall Corporation acquired 80 percent of Sharp Company’s voting shares on January 1, 20X4, for $280,000 in cash and marketable securities. At that date, the noncontrolling interest had a fair value of $70,000 and Sharp reported net assets of $300,000. Assume Randall uses the fully adjusted equity method. Trial balances for the two companies on December 31, 20X7, are as follows:


Additional Information
1. The full amount of the differential at acquisition was assigned to buildings and equipment with a remaining 10-year economic life.
2. Randall and Sharp regularly purchase inventory from each other. During 20X6, Sharp Company sold inventory costing $40,000 to Randall Corporation for $60,000, and Randall resold 60 percent of the inventory in 20X6 and 40 percent in 20X7. Also in 20X6, Randall sold inventory costing $20,000 to Sharp for $26,000. Sharp resold two-thirds of the inventory in 20X6 and one-third in 20X7.
3. During 20X7, Sharp sold inventory costing $30,000 to Randall for $45,000, and Randall sold items purchased for $9,000 to Sharp for $12,000. Before the end of the year, Randall resold one-third of the inventory it purchased from Sharp in 20X7. Sharp continues to hold all the units purchased from Randall during 20X7.
4. Sharp owes Randall $10,000 on account on December 31, 20X7.
5. Assume that both companies use straight-line depreciation and that no property, plant, and equipment has been purchased since the acquisition.

Required
a. Prepare the 20X7 journal entries recorded on Randall's books related to its investment in Sharp if Randall uses the equity method.
b. Prepare all elimination entries needed to complete a consolidation worksheet as of December 31, 20X7.
c. Prepare a three-part consolidation worksheet as of December 31, 20X7.
d. Prepare, in good form, a consolidated income statement, balance sheet, and retained earnings statement for20X7.


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  • CreatedMay 23, 2014
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