On January 1, 2014, Palmero Company purchased an 80% interest in Santos Company
ID: 2453506 • Letter: O
Question
On January 1, 2014, Palmero Company purchased an 80% interest in Santos Company for $2,800,000 at which time Santos Company had retained earnings of $1,000,000 and capital stock of $500,000. On the date of acquisition, the fair value of the assets and liabilities of Santos Company was equal to their book value, except for property and equipment (net), which had a fair value of $1,500,000 and a book value of $600,000. The property and equipment had an estimated remaining life of 10 years. Palmero Company reported net income from independent operations of $400,000 in 2014 and $425,000 in 2015. Santos Company reported net income of $300,000 in 2014 and $400,000 in 2015. Neither company declared dividends in 2014 or 2015. Palmero uses the cost method to account for its investment in Santos. (a) Prepare in general journal form the entries necessary in the consolidated statements workpapers for the years ended December 31, 2014 and 2015. (b) Prepare a schedule or t-account showing the calculation of the controlling and noncontrolling interest in consolidated net income for the years ended December 31, 2014 and December 31, 2015.
Explanation / Answer
(a) General Journal : For consolidated statement for the year ended 31st Dec,2014 & 2015
Investment In Santos Company Dr. $2800000
To Cash $2800000
(Being 80% interest in Santos compnay is purchased )
No entry for the Retained earning and Net Income for 2014 and 2015
property and Equipment(1500000*80%) Dr.$1200000
To Capital stock(500000*80%) $ 400000
To Capital Reserve $800000
(being capital stock and property & Equipment purchased)
Net Income Dr. $825000
To Profit and Loss $825000
(Being net Inceomt tranfer to profit and loss account)
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