On January 2, 20x4, Puma Co. purchased 70% of Squirrel Co.’s common stock for $2
ID: 2570254 • Letter: O
Question
On January 2, 20x4, Puma Co. purchased 70% of Squirrel Co.’s common stock for $270,200. At that date the fair value of the noncontrolling interest was equal $115,800. On that date the Squirrel’s net assets had a book value of $350,000. The book values and fair values of Squirrel’s assets and liabilities were equal except land that had a fair value $10,000 higher than the book value, the rest of the differential is assigned to goodwill.
Puma sold inventory costing $48,000 to Squirrel for $80,000 in 2014, of which $20,000 Squirrel had in its inventory at the end of 20x4. Squirrel sold all of it to unaffiliated customers in 20x5.
Squirrel sold inventory costing $120,000 to Puma for $200,000 in 20x4. Puma resold 62.5% of it in 2014 and the remainder in 2015.
Puma sold goods costing $54,000 to Squirrel for $90,000. Squirrel continues to hold $20,000 of its purchase from Puma on December 31, 20x5,
During 2015 Squirrel sold inventory costing $74,000 to Puma for $124,000. Puma held all inventory purchased from Squirrel during 2015 on December 31, 20x5.
Assume both companies use straight-line depreciation and that all depreciable assets have a 10 year life from the date of acquisition. Puma uses the fully adjusted equity method.
The 20x5 trial balances for Puma Co. and Squirrel Co. are given below.
Puma Co.
Squirrel Co.
Item
Debit
Credit
Debit
Credit
Cash
55,300
25,000
Accounts Rec.
26,000
70,000
Inventory
200,000
110,000
land
30,000
20,000
Equipment(net)
210,000
200,000
Investment in Squirrel Co.
265,700
Cost of Goods Sold
190,000
140,000
Depreciation Expense
40,000
20,000
Other Expenses
10,000
10,000
Dividends declared
35,000
5,000
Accounts Payable
5,000
5,000
Notes Payable
25,000
15,000
Common Stock
150,000
100,000
Add. Paid in Capital
140,000
30,000
Retained Earnings
428,000
240,000
Sales
300,000
210,000
Income from Sun Co.
14,000
$1,062,000
$1,062,000
$600,000
$600,000
Required
Give the journal entries recorded on Puma’s books in 20x5 related to its investment in Squirrel if Puma uses the equity method.
Prepare all eliminating entries needed to complete a consolidation worksheet as of December 31, 20x5.
Prepare a three-part consolidation worksheet as of December 31, 20x5.
Prepare in good form a consolidated income statement, balance sheet and statement of retained earnings for 20x5 .
Follow the steps we used in school.
Puma Co.
Squirrel Co.
Item
Debit
Credit
Debit
Credit
Cash
55,300
25,000
Accounts Rec.
26,000
70,000
Inventory
200,000
110,000
land
30,000
20,000
Equipment(net)
210,000
200,000
Investment in Squirrel Co.
265,700
Cost of Goods Sold
190,000
140,000
Depreciation Expense
40,000
20,000
Other Expenses
10,000
10,000
Dividends declared
35,000
5,000
Accounts Payable
5,000
5,000
Notes Payable
25,000
15,000
Common Stock
150,000
100,000
Add. Paid in Capital
140,000
30,000
Retained Earnings
428,000
240,000
Sales
300,000
210,000
Income from Sun Co.
14,000
$1,062,000
$1,062,000
$600,000
$600,000
Explanation / Answer
BALANCE SHEET $ 000’S
PUMA
SQUIRREL
WORKINGS
P & S
NON CURRENT ASSETS
GOODWIL
14.4
LAND
60
EQUIPMENT
410
484.4
CURRENT ASSETS
INVENTORY
310 - 58
252
ACC REC
96
CASH
80.3
428.3
TOTAL ASSETS
912.7
CURRENT LIABILITIES
ACC PAY
NOTES PAY
10
40
NET ASSETS
862.7
COMMON STOCK
290
RET EARNINGS
424.4
NON CONTROL INTEREST
148.3
CON P/L
SALES
300+ 210 -90-124
296
COST OF SALES
190+140-90-124+58
174
GROSS PROFIT
122
DEP
60
OTHER EXPENSES
20
NET PROFIT
42
OTHER INCOME
14
DIV PAID
35
PROFIT FOR YEAR
21
RETAINED PROFIT B/F
163.4
RETAINED PROFIT C/F
184.4
862.7
BALANCE SHEET $ 000’S
PUMA
SQUIRREL
WORKINGS
P & S
NON CURRENT ASSETS
GOODWIL
14.4
LAND
60
EQUIPMENT
410
484.4
CURRENT ASSETS
INVENTORY
310 - 58
252
ACC REC
96
CASH
80.3
428.3
TOTAL ASSETS
912.7
CURRENT LIABILITIES
ACC PAY
NOTES PAY
10
40
NET ASSETS
862.7
COMMON STOCK
290
RET EARNINGS
424.4
NON CONTROL INTEREST
148.3
CON P/L
SALES
300+ 210 -90-124
296
COST OF SALES
190+140-90-124+58
174
GROSS PROFIT
122
DEP
60
OTHER EXPENSES
20
NET PROFIT
42
OTHER INCOME
14
DIV PAID
35
PROFIT FOR YEAR
21
RETAINED PROFIT B/F
163.4
RETAINED PROFIT C/F
184.4
862.7
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