Pie Company acquired 75 percent of Strawberry Company\'s stock at the underlying
ID: 2534937 • Letter: P
Question
Pie Company acquired 75 percent of Strawberry Company's stock at the underlying book value on January 1, 20X8. At that date, the fair value of the noncontrolling interest was equal to 25 percent of the book value of Strawberry Company. Strawberry Company reported shares outstanding of $350,000 and retained earnings of $100,000. During 20x8, Strawberry Company reported net income of $60,000 and paid dividends of $3,000. In 20x9, Strawberry Company reported net income of $90,000 and paid dividends of $15,000. The following transactions occurred between Pie Company and Strawberry Company in 20X8 and 20x9: Strawberry Co. sold equipment to Pie Co. for a $42,000 gain on December 31, 20X8. Strawberry Co. had originally purchased the equipment for $140,000 and it had a carrying value of $28,000 on December 31, 20X8. At the time of the purchase, Pie Co. estimated that the equipment still had a seven-year remaining useful life. Both companies use the straight-line method for depreciation. Pie Co. sold land costing $90,000 to Strawberry Co. on June 28, 20X9, for $110,000. Required: Give all consolidating entries needed to prepare a consolidation worksheet for 20x9 assuming that Pie Co. uses the fully adjusted equity method to account for its investment in Strawberry Company.Explanation / Answer
Journal Entries
(Being Gain on equipment reversed)
IN 20X8 STRAWBERRY COMPANY RESIDUAL INCOME=$60,000-$42,000=$18,000
(Being Gain on equipment reversed)
Book Value Calculations-20X9
$157,000($100,000+$60,000-$3,000)
Deferred Gain Calculation
Basic Consolidation Entry
Eliminate Gain On purchase of Land
Eliminate gain on Equipment sale and correct Asset Basis
Date General Journal Debit Credit 20X8 Investment in Strawberry 45,000 Income From Strawberry(60,000*75%) 45,000 (Being Income Accrued from Strawberry company) Cash 2,250 Investment in Strawberry($3,000 * 75%) 2,250 (being Dividend Paid) Income From Strawberry($42,000 *75%) $31,500 Investment in Starwberry $31,500(Being Gain on equipment reversed)