18 Aug Question: Pop Corporation Acquired 70 Percent Of Soda Company’s Voting Common Shares On January 1, 20X2, For $112,700. At That Date, The Noncontrolling Interest Had A Fair Value Of $48,300 And Soda Reported $71,000 Of Common Stock Outstanding And Retained Earnings Of $31,000. The Differential Is Assigned To Buildings And Equipment, Which Had A Fair Value $28,000 …
Pop Corporation acquired 70 percent of Soda Company’s voting common shares on January 1, 20X2, for $112,700. At that date, the noncontrolling interest had a fair value of $48,300 and Soda reported $71,000 of common stock outstanding and retained earnings of $31,000. The differential is assigned to buildings and equipment, which had a fair value $28,000 higher than book value and a remaining 10-year life, and to patents, which had a fair value $31,000 higher than book value and a remaining life of five years at the date of the business combination. Trial balances for the companies as of December 31, 20X3, are as follows:
| Pop Corporation | Soda Company | |||||||||||||||
| Item | Debit | Credit | Debit | Credit | ||||||||||||
| Cash & Accounts Receivable | $ | 16,400 | $ | 22,600 | ||||||||||||
| Inventory | 166,000 | 36,000 | ||||||||||||||
| Land | 81,000 | 41,000 | ||||||||||||||
| Buildings & Equipment | 350,000 | 261,000 | ||||||||||||||
| Investment in Soda Company | 117,200 | |||||||||||||||
| Cost of Goods Sold | 187,000 | 80,800 | ||||||||||||||
| Depreciation Expense | 20,000 | 15,000 | ||||||||||||||
| Interest Expense | 17,000 | 6,200 | ||||||||||||||
| Dividends Declared | 31,000 | 16,000 | ||||||||||||||
| Accumulated Depreciation | $ | 141,000 | $ | 85,000 | ||||||||||||
| Accounts Payable | 93,400 | 36,000 | ||||||||||||||
| Bonds Payable | 219,250 | 94,000 | ||||||||||||||
| Bond Premium | 1,600 | |||||||||||||||
| Common Stock | 121,000 | 71,000 | ||||||||||||||
| Retained Earnings | 128,900 | 61,000 | ||||||||||||||
| Sales | 261,000 | 130,000 | ||||||||||||||
| Other Income | 10,600 | |||||||||||||||
| Income from Soda Company | 10,450 | |||||||||||||||
| $ | 985,600 | $ | 985,600 | $ | 478,600 | $ | 478,600 | |||||||||
On December 31, 20X2, Soda purchased inventory for $31,500 and sold it to Pop for $45,000. Pop resold $30,000 of the inventory (i.e., $30,000 of the $45,000 acquired from Soda) during 20X3 and had the remaining balance in inventory at December 31, 20X3.
During 20X3, Soda sold inventory purchased for $56,000 to Pop for $80,000, and Pop resold all but $25,000 of its purchase. On March 10, 20X3, Pop sold inventory purchased for $15,000 to Soda for $30,000. Soda sold all but $7,800 of the inventory prior to December 31, 20X3. Assume Pop uses the fully adjusted equity method, that both companies use straight-line depreciation, and that no property, plant, and equipment has been purchased since the acquisition.
Required:
a. Prepare all consolidation entries needed to prepare a full set of consolidated financial statements at December 31, 20X3, for Pop and Soda. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.
- Record the basic consolidation entry.
Note: Enter debits before credits.
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- Record the amortized excess value reclassification entry.
Note: Enter debits before credits.
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- Record the excess value (differential) reclassification entry.
Note: Enter debits before credits.
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- Record the optional accumulated depreciation consolidation entry.
Note: Enter debits before credits.
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- Record the entry to reverse last year’s deferral.
Note: Enter debits before credits.
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