Mojito Corporation acquired 80% of the outstanding stock of Dulcinea, Inc., on January 1, 2017, for $1,950,000 in cash. The remaining 20% of Dulcinea’s stock traded actively at the same price as Mojito paid. The book value of Dulcinea, Inc. at the acquisition date was $1,865,000. One of Dulcinea’s buildings, with a 14-year remaining life, was undervalued in the company’s accounting records by $140,000. Also, Dulcinea’s newly developed patent, with an estimated 10-year life, was assessed to have a fair value of $365,000. During subsequent years, Dulcinea reports the following:

Net Income Dividends

2017 $225,000 $100,000

2018 $250,000 $110,000

2019 $295,000 $115,000

The following trial balances are for these two companies as of December 31, 2020.

	Mojito	Dulcinea
Debits
Cash	$376,000	$290,000
Receivables	530,000	334,000
Inventory	750,000	401,000
Investment in Dulcinea	2,321,200	0
Land	670,000	585,000
Buildings (net)	835,000	725,000
Equipment (net)	350,000	285,000
Operating expenses	450,000	200,000
Dividends paid	245,000	120,000
Total debits	$6,527,200	$2,940,000
Credits
Liabilities	285,000	105,000
Common stock	750,000	40,000
Additional paid-in capital	1,660,250	410,000
Retained earnings, 1/1/19	2,730,150	1,860,000
Revenues	879,000	525,000
Investment Income	222,800	0
Total Credits	$6,527,200	$2,940,000

Required :

1. Prepare a consolidation worksheet for this business combination.
2. Prepare the consolidating entry “*C” that would have been required if Mojito had used the initial value method for accounting for its investment in Dulcinea.
3. Prepare the consolidating entry “*C” that would have been required if Mojito had used the partial equity method for accounting for its investment in Dulcinea.

Answer rating: 100% (QA)

The acquisition is 80 so Mojitos owns the company and Dulcinea Inc is a subsidiary Mojito paid 1950000 in cash for 32000 shares of Dulcinea inc Consol... View the full answer