Plan corporation acquired 80% of the outstanding voting stock of Sal Corporation on January 1, 2017 for
Question:
Plan corporation acquired 80% of the outstanding voting stock of Sal Corporation on January 1, 2017 for $14,000,000, when Sal’s stockholders’ equity consisted of $8,000,000 capital stock and $1,000,000 Retained Earnings. The price reflected a $300,000 undervalued inventory, which was sold in 2017, and a $3,000,000 undervalued building with a 5 year life, from January 1, 2017.
Additional Information:
1) Plan sells inventory items to Sal on a regular basis. During 2019 Plan sold $800,000 of inventory (revenue) to Sal. The original cost of the inventory to Plan had been $500,000. The deferred Gross profit on this inventory was $75,000. During 2020, Plan sold inventory to Sal for $500,000 (revenue). The original cost of the inventory had been $200,000. The deferred Gross Profit on the inventory is $50,000. These are all downstream transactions.
2) During 2018 Plan sold land (this is downstream) that cost $1,000,000 to Sal for $1,400,000.
3) Plan sold equipment with a net book value of $600,000 to Sal on January 1, 2020 for $500,000. (This is downstream). The equipment has a 3-year remaining life.
Plan uses a full equity method of accounting. The consolidation working papers for December 21, 2020 are on the attached answer sheet. Please provide:
1) The calculations for the intercompany transfers
2) The FMV calculation
3) The Income from Sub Calculation
4) The Investment Account Reconciliation
5) The Consolidation Journal Entries in General Journal Format
6) Finish the consolidation…for December 31, 2020