On January 1, 2017, Corgan Company acquired 70 percent of the outstanding voting

Question

On January 1, 2017, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,540,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $950,000, retained earnings of $500,000, and a noncontrolling interest fair value of $660,000. Corgan attributed the excess of fair value over Smashing's book value to various covenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing.

During the next two years, Smashing reported the following:

Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2017 and 2018, 30 percent of the current year purchases remain in Smashing's inventory.

A.) Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2018.

B.) Prepare the worksheet adjustments for the December 31, 2018, consolidation of Corgan and Smashing.

(Please give me the Considaltion worksheet entries for entries G, S, A, I, D, E, TI, G

Net Income Dividends Declared Inventory Purchases from Corgan 2017 $ 400,000 $ 60,000 $ 350,000 2018 380,000 70,000 370,000

Explanation / Answer

The consolidated worksheet entries are prepared as below:

_____

Notes:

The computation of various items is shown as below:

1)

Annual Amortization Expense:

_____

2)

Ending Year Profit Deferral (2017):

Cost = 350,000/1.6 = $218,750

Intra-Entity Gross Profit = 350,000 - 218,750 = $131,250

Ending Inventory Gross Profit = 131,250*30% = $39,375

_____

Ending Year Profit Deferral (2018):

Cost = 370,000/1.6 = $231,250

Intra-Entity Gross Profit = 370,000 - 231,250 = $138,750

Ending Inventory Gross Profit = 138,750*30% = $41,625

_____

3)

Equity in Smashing's Earnings:

Transaction Consolidating Entries Debit Credit 1) Prepare Entry *G 1 Investment in Smashing $39,375 Cost of Goods Sold $39,375 2) Prepare Entry S 2 Common Stock-Smashing $950,000 Retained Earnings-Smashing $840,000 Investment in Smashing $1,253,000 Noncontrolling Interest $537,000 2) Prepare Entry A 3 Covenants $712,500 Investment in Smashing $498,750 Noncontrolling Interest $213,750 4) Prepare Entry I 4 Equity in Earnings of Smashing $237,500 Investment in Smashing $237,500 5) Prepare Entry D 5 Investment in Smashing $49,000 Dividends Declared $49,000 6) Prepare Entry E 6 Amortization Expense $37,500 Covenants $37,500 7) Prepare Entry TI 7 Sales $370,000 Cost of Goods Sold $370,000 8) Prepare Entry G 8 Cost of Goods Sold $41,625 Inventory $41,625

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