Acc407 Advanced Accounting: P5-32 Power Corporation acquired 75 percent of Best Company’s ownership

Acc407 Advanced Accounting

P5-32 Consolidation Workpaper at End of First Year of Ownership
Power Corporation acquired 75 percent of Best Company’s ownership on January 1, 20X8, for $96,000. At that date, the fair value of the noncontrolling interest was $32,000. The book value of Best’s net assets at acquisition was $100,000. The book values and fair values of Best’s assets and liabilities were equal, except for Best’s buildings and equipment, which were worth $20,000 more than book value. Buildings and equipment are depreciated on a 10-year basis.
Although goodwill is not amortized, the management of Power concluded at December 31, 20X8, that goodwill from its purchase of Best shares had been impaired and the correct carrying amount was $2,500. Goodwill and goodwill impairment were assigned proportionately to the controlling and noncontrolling shareholders. (Note that Power Company does not adjust its Income from Subsidiary for goodwill impairment under the basic equity method.)
Trial balance data for Power and Best on December 31, 20X8, are as follows:
Power Corporation Best Company
Item Debit Credit Debit Credit
Cash 47,500 21,000
Accounts Receivable 70,000 12,000
Inventory 90,000 25,000
Land 30,000 15,000
Buildings and Equipment 350,000 150,000
Investment in Best Co. Stock 100,500
Cost of Goods Sold 125,000 110,000
Wage Expense 42,000 27,000
Depreciation Expense 25,000 10,000
Interest Expense 12,000 4,000
Other Expenses 13,500 5,000
Dividends Declared 30,000 16,000
Accumulated Depreciation 145,000 40,000
Accounts Payable 45,000 16,000
Wages Payable 17,000 9,000
Notes Payable 150,000 50,000
Common Stock 200,000 60,000
Retained Earnings 102,000 40,000
Sales 260,000 180,000
Income from Subsidiary 16,500
$935,500 $935,500 $395,000 $395,000

a. Give all eliminating entries needed to prepare a three-part consolidation workpaper as of December 31, 20X8.
b. Prepare a three-part consolidation workpaper for 20X8 in good form.
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