Prime Company holds 65 percent of Suspect Company's stock, acquired on January 1, 20X2, for $182,000....

 

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Prime Company holds 65 percent of Suspect Company's stock, acquired on January 1, 20X2, for $182,000. On the date of acquisition, Suspect reported retained earnings of $55,000 and $160,000 of common stock outstanding, and the fair value of the noncontrolling interest was $98,000. Prime uses the fully adjusted equity method in accounting for its investment in Suspect. Trial balance data for the two companies on December 31, 20X7, are as follows: Cash and Accounts Receivable Inventory Land Buildings and Equipment Investment in Suspect Company Cost of Goods Sold Depreciation and Amortization Expense Other Expenses Dividends Declared Accumulated Depreciation Accounts Payable Bonds Payable Common Stock Retained Earnings Sales Income from Suspect Company Total Additional Information Item Net book value reported by Suspect Company Common stock outstanding Retained earnings balance, January 1, 20X7 Net income for 20X7 Dividends paid in 20X7 Retained earnings balance, December 31, 20X7 Proportion of stock held by Prime Company Minus: Upstream Land Gain Minus: Downstream Equipment Transfer Gain Add: Reversal of deferred gain 20X6 on equipment Add: Reversal of deferred gain 20X7 on equipment Add: Goodwill Balance in investment account view transaction list Consolidation Worksheet Entries < A B Entry 1 Record the basic consolidation entry. Note: Enter debits before credits. Record entry Net Income Less: Dividends Declared Ending Balance Balance Sheet Cash and Accounts Receivable D a. At the date of combination, the book values and fair values of Suspect's separately identifiable assets and liabilities were equal. The full amount of the increased value of the entity was attributed to goodwill. At December 31, 20X6, the management of Prime reviewed the amount attributed to goodwill as a result of its purchase of Suspect stock and recognized an impairment loss of $14,000. No further impairment occurred in 20X7. b. On January 1, 20X5, Suspect sold land for $20,000 that had cost $8,000 to Prime. c. On January 1, 20X6, Prime sold to Suspect equipment that it had purchased for $108,000 on January 1, 20X1. The equipment has a total 18-year economic life and was sold to Suspect for $93,600. Both companies use straight-line depreciation. d. Intercompany receivables and payables total $9,000 on December 31, 20X7. Required: a. Prepare a reconciliation between the balance in Prime's Investment in Suspect Company account reported on December 31, 20X7, and Suspect's book value. Note: Enter the proportion of stock held as a fraction (i.e., 0.75), not in percent. Inventory Land Buildings & Equipment Less: Accumulated Depreciation Investment in Suspect Company Goodwill Total Assets Accounts Payable Bonds Payable Common Stock Retained Earnings NCI in Net Assets of Suspect Company Total Liabilities & Equity E Accounts Clear entry Income Statement Sales Less: COGS Less: Depreciation & Amortization Expense Less: Other Expenses Income from Suspect Company Consolidated Net Income NCI in Net Income Controlling Interest in Net Income Statement of Retained Earnings Beginning Balance F Credit Debit $ 68,000 105,000 92,000 168,000 211,050 155,000 70,000 28,000 14,000 44 19,000 15,000 54,000 48,000 $ 307,900 70,000 220,000 260,000 408,100 290,000 33,050 $ 1,589,050 $ 580,000 Prime Company Prime Company b-1. Prepare all worksheet consolidation entries needed as of December 31, 20X7. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Debit 0 $ 158,000 0 0 236,000 0 178,000 $ 550,000 $ 1,589,050 Debit PRIME COMPANY AND SUBSIDIARY Consolidated Financial Statement Worksheet December 31, 20X7 view consolidation entries Suspect Company 0 0 0 0 0 b-2. Complete a three-part consolidation worksheet for 20X7. Note: Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. 0 0 Credit 0 Consolidation Entries Credit Debit 0 0 0 > 0 0 Suspect Company 0 0 Credit 0 0 0 Consolidated $ 67,000 $ 580,000 0 20,000 0 40,000 0 160,000 0 145,000 0 148,000 Prime Company holds 65 percent of Suspect Company's stock, acquired on January 1, 20X2, for $182,000. On the date of acquisition, Suspect reported retained earnings of $55,000 and $160,000 of common stock outstanding, and the fair value of the noncontrolling interest was $98,000. Prime uses the fully adjusted equity method in accounting for its investment in Suspect. Trial balance data for the two companies on December 31, 20X7, are as follows: Cash and Accounts Receivable Inventory Land Buildings and Equipment Investment in Suspect Company Cost of Goods Sold Depreciation and Amortization Expense Other Expenses Dividends Declared Accumulated Depreciation Accounts Payable Bonds Payable Common Stock Retained Earnings Sales Income from Suspect Company Total Additional Information Item Net book value reported by Suspect Company Common stock outstanding Retained earnings balance, January 1, 20X7 Net income for 20X7 Dividends paid in 20X7 Retained earnings balance, December 31, 20X7 Proportion of stock held by Prime Company Minus: Upstream Land Gain Minus: Downstream Equipment Transfer Gain Add: Reversal of deferred gain 20X6 on equipment Add: Reversal of deferred gain 20X7 on equipment Add: Goodwill Balance in investment account view transaction list Consolidation Worksheet Entries < A B Entry 1 Record the basic consolidation entry. Note: Enter debits before credits. Record entry Net Income Less: Dividends Declared Ending Balance Balance Sheet Cash and Accounts Receivable D a. At the date of combination, the book values and fair values of Suspect's separately identifiable assets and liabilities were equal. The full amount of the increased value of the entity was attributed to goodwill. At December 31, 20X6, the management of Prime reviewed the amount attributed to goodwill as a result of its purchase of Suspect stock and recognized an impairment loss of $14,000. No further impairment occurred in 20X7. b. On January 1, 20X5, Suspect sold land for $20,000 that had cost $8,000 to Prime. c. On January 1, 20X6, Prime sold to Suspect equipment that it had purchased for $108,000 on January 1, 20X1. The equipment has a total 18-year economic life and was sold to Suspect for $93,600. Both companies use straight-line depreciation. d. Intercompany receivables and payables total $9,000 on December 31, 20X7. Required: a. Prepare a reconciliation between the balance in Prime's Investment in Suspect Company account reported on December 31, 20X7, and Suspect's book value. Note: Enter the proportion of stock held as a fraction (i.e., 0.75), not in percent. Inventory Land Buildings & Equipment Less: Accumulated Depreciation Investment in Suspect Company Goodwill Total Assets Accounts Payable Bonds Payable Common Stock Retained Earnings NCI in Net Assets of Suspect Company Total Liabilities & Equity E Accounts Clear entry Income Statement Sales Less: COGS Less: Depreciation & Amortization Expense Less: Other Expenses Income from Suspect Company Consolidated Net Income NCI in Net Income Controlling Interest in Net Income Statement of Retained Earnings Beginning Balance F Credit Debit $ 68,000 105,000 92,000 168,000 211,050 155,000 70,000 28,000 14,000 44 19,000 15,000 54,000 48,000 $ 307,900 70,000 220,000 260,000 408,100 290,000 33,050 $ 1,589,050 $ 580,000 Prime Company Prime Company b-1. Prepare all worksheet consolidation entries needed as of December 31, 20X7. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Debit 0 $ 158,000 0 0 236,000 0 178,000 $ 550,000 $ 1,589,050 Debit PRIME COMPANY AND SUBSIDIARY Consolidated Financial Statement Worksheet December 31, 20X7 view consolidation entries Suspect Company 0 0 0 0 0 b-2. Complete a three-part consolidation worksheet for 20X7. Note: Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. 0 0 Credit 0 Consolidation Entries Credit Debit 0 0 0 > 0 0 Suspect Company 0 0 Credit 0 0 0 Consolidated $ 67,000 $ 580,000 0 20,000 0 40,000 0 160,000 0 145,000 0 148,000

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