Pisa Company acquired 75 percent of Siena Company on January 1, 20X3 for $712,50
ID: 2534934 • Letter: P
Question
Pisa Company acquired 75 percent of Siena Company on January 1, 20X3 for $712,500. The fair value of the noncontrolling interest was equal to 25 percent of book value. On the date of acquisition, Siena had common stock outstanding of $300,000 and a balance in retained earnings of $650,000. During 20X3, Siena purchased inventory for $35,000 and sold it to Pisa for $50,000. Of this amount, Pisa reported $20,000 in ending inventory in 20X3 and later sold it in 20x4. In 20x4, Pisa sold inventory it had purchased for $40,000 to Siena for $60,000. Siena sold $45,000 of this inventory in 20X4. Income and dividend information for Siena for 20X3 and 20X4 are as follows: Year Net Income Dividends 20X3 20X4 $150,000 $200,000 $50,000 $40,000 Pisa Company uses the equity method Required: a. Present the worksheet elimination entries necessary to prepare consolidated financial statements for 20X3 b. Present the worksheet elimination entries necessary to prepare consolidated financial statements for 20X4Explanation / Answer
PART-1)
Excess value calculation:
NCI Jones co 90% Land
Opening balance 12,000 108,000 120,000
Changes 0 0
Closing balance 12,000 108,000 120,000
Journal entries:
Excess value reclassication journal entry:
Debit Credit
Land 120,000
Investment in Smith Corp 108,000
NCI in NA of Smith Corp 12,000
Reversal of previous year's Gross profit deferreal:
Debit Credit
Retained earnings 21,600
NCI in NA of Smith Corp 2,400
COGS 24,000
Basic elimination entry:
Debit Credit
Common stock 520,000
Additional paid in capital 200,000
NCI in NA of Smith Corp 44,400
Income from Smith Co 378,000
Retained earnings 700,000
Dividends declared 200,000
Investment in Smith Corp 1,476,000
NCI in NA of Smith Corp 166,400
Working:
NCI 10% = Jones Co.90% Common stock APIC Retained earnings
Beginning Book balance 142,000 1,278,000 520,000 200,000 700,000
Net income 42000 378,000 420,000
Dividends -20000 -180,000 -200,000
Ending BV 142,000 1,476,000 920,000
PART-2)
Debit Credit
Sales 440,000
COGS 416,000
Inventory 24,000
Excess value calculation:
NCI Jones co 90% Land
Opening balance 12,000 108,000 120,000
Changes 0 0
Closing balance 12,000 108,000 120,000
Excess value reclassication journal entry:
Debit Credit
Land 120,000
Investment in Smith Corp 108,000
NCI in NA of Smith Corp 12,000
Transactions:
Total = Resold Ending inventory
Sales 440,000 308,000 132,000
COGS 360,000 252,000 108,000
Gross Profit 80,000 56,000 24,000
Gross Profit % 18.18%
Basic elimination entry:
Debit Credit
Common stock 520,000
Additional paid in capital 200,000
NCI in NA of Smith Corp 33,600
Income from Smith Co 324,000
Retained earnings 540,000
Dividends declared 200,000
Investment in Smith Corp 1,278,000
NCI in NA of Smith Corp 139,600
Working:
NCI 10% = Jones Co.90% Common stock APIC Retained earnings
Beginning Book balance 126,000 1,134,000 520,000 200,000 540,000
Net income 36000 324,000 360,000
Dividends -20000 -180,000 -200,000
Ending BV 142,000 1,278,000 700,000
Upstream Deferred GP = Unrecorded + NCI's share = 21,600 + 2400 = 24000