Chapter 5 Allocation and Depreciation of Differences between Implied and Book Values Homework Exercise 5-3 On January 1, 2020, Palmero Company purchased an 80% interest in Santos Company for $2,800,000. On this date, Santos Company had common stock of $500,000 and retained earnings of $1,000,000. On the date of acquisition, the fair value of the assets and liabilities of Santos were equal to their book value except for property and equipment(net), which had a fair value of $1,500,000, and a book value of $600,000. The property and equipment had an estimated remaining life of 10 years. Palmero reported net income from independent operations of $400,000 in 2020 and $425,000 in 2021. Santos reported net income of $300,000 in 2020 and $400,000 in 2021. Neither company declared dividends in 2020 and 2021. Palmero uses the cost method to account for its investment in Santos Required: a. Prepare in general journal form the entries necessary in consolidated statements workpapers for the years ended December 31, 2020 and 2021. b. Prepare a schedule or T account showing the calculation of the controlling and noncontrolling interest in the consolidated net income for the years ended December 31, 2020 and December 31, 2021.

Chapter 5 Allocation and Depreciation of Differences between Implied and Book Values Homework Exercise 5-3 On January 1, 2020, Palmero Company purchased an 80% interest in Santos Company for $2,800,000. On this date, Santos Company had common stock of $500,000 and retained earnings of $1,000,000. On the date of acquisition, the fair value of the assets and liabilities of Santos were equal to their book value except for property and equipment(net), which had a fair value of $1,500,000, and a book value of $600,000. The property and equipment had an estimated remaining life of 10 years. Palmero reported net income from independent operations of $400,000 in 2020 and $425,000 in 2021. Santos reported net income of $300,000 in 2020 and $400,000 in 2021 . Neither company declared dividends in 2020 and 2021. Palmero uses the cost method to account for its investment in Santos Required: a. Prepare in general journal form the entries necessary in consolidated statements workpapers for the years ended December 31, 2020 and 2021. b. Prepare a schedule or T account showing the calculation of the controlling and noncontrolling interest in the consolidated net income for the years ended December 31, 2020 and December 31, 2021