On January 1, 2018, Powers Company acquired 80% of the ordinary share of Scullery Company for $195,000. On this date Scullery had total owners' equity of $200,000 (ordinary share, premium ordinary and retained earnings of $10,000, $90,000, and $100,000 respectively). In that date inventory undervalued $6,250 and equipment undervalued $12,500. The equipment has a remaining life of five years and straight-line depreciation is used. The following transaction occurred during 2018 and 2019:

1) On December 31, 2018, Powers sold equipment to Scullery at a gain of $10,000. During 2019, the equipment was used by Scullery. Depreciation is being computed using the straight-line method, a five-year life, and no salvage value.

2)  during 2018scullery sold merchandise inventory 120,000 to powers with gross profit 25% which sold all except 20,000

3) On July 1, 2018 Scullery sold land $100,000 to Powers including 10,000 gain.

4) 1/1/2019 Scullery sold a truck to Powers for 70,000 and book value 50,000 with remaining useful life 5 years

5) On January 1, 2019, Powers purchased merchandise from scullery for $90,000 with gross profit 25%, which sold all except 30,000.

6) 31/12/2019 powers sold 200,000 merchandise to scullery which cost 180,000

The following is trial balance for parent and its subsidiary for the year ended 31/12/2019

trial balance 31/12/2019
	, Powers	Scullery
cash	25000	13000
account receivables	120,000	32,000
inventories	460,000	250,000
cost of goods sold	650,000	400,000
operating expenses	430,000	150,000
investment	198,000
land	250,000	50,000
building	100,000
equipment	220,000	150,000
trucks	180,000	120,000
dividend	30,000	20,000
total	2663000	1185000
sales	1,500,000	610,000
gain on sold truck		20,000
account payable	163,000	95,000
notes payable		220,000
Shares	350,000	10,000
Premium	250,000	90,000
Retained	400,000	140,000
Total	2,663,000	1,185,000

 

Required:

1. Journalize the above transaction when occurred.
2.  Journalize all the elimination entries in 31/12/2018, 2019.
3.  Complete the working paper to prepare consolidation statements.

Answer rating: 100% (QA)

Journal Entries in the books of Power Company Date Particulars Dr C... View the full answer