Paiton, Inc., and Sandra Corporation formed a business combination on January 1, 2022, when Paiton acquired a 60 percent interest in Sandra’s common stock for $312,000 in cash. The book value of Sandra’s assets and liabilities on that day totaled $300,000, and the fair value of the noncontrolling interest was $208,000. Patents being held by Sandra (with a 12-year remaining life) were undervalued by $90,000 within the company’s financial records, and a trademark (10-year life) worth $130,000 was also recognized as part of the acquisition-date fair value. 

Intra-entity inventory transfers occur regularly between the two companies. Merchandise carried over from one year to the next is always sold in the subsequent period.

Paiton had not paid for half of the 2024 inventory transfers by year-end.

On January 1, 2023, Paiton sold $15,000 in land to Sandra for $22,000. Sandra is still holding this land.

On January 1, 2024, Sandra acquired $20,000 (face value) of Paiton’s bonds in the open market. These bonds had an 8 percent cash interest rate. On the date of repurchase, the liability was shown within Paiton’s records at $21,386, indicating an effective yield of 6 percent. Sandra’s acquisition price was $18,732 based on an effective interest rate of 10 percent.

Sandra indicated earning a net income of $25,000 within its 2024 financial statements. The subsidiary also reported a beginning Retained Earnings balance of $300,000, dividends of $4,000, and common stock of $100,000. Sandra has not issued any additional common stock since its takeover. The parent company has applied the equity method to record its investment in Sandra.

a. Prepare consolidation worksheet adjustments for 2024.

b. Calculate the amount of consolidated net income attributable to the noncontrolling interest for 2024. In addition, determine the ending 2024 balance for noncontrolling interest in the consolidated balance sheet.

c. Determine the consolidation worksheet adjustments needed in 2025 in connection with the intra-entity bonds.

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Year 2022 2023 2024 Original Cost to Sandra $ 80,000 100,000 90,000 Transfer Price to Paiton $100,000 125,000 120,000 Ending Balance at Transfer Price $20,000 40,000 30,000