Big Company acquired 75 percent of Little Company\'s stock at underlying book va
ID: 2579146 • Letter: B
Question
Big Company acquired 75 percent of Little Company's stock at underlying book value on January 1, 20X8. At that date, the fair value of the noncontrolling interest was equal to 25 percent of the book value of Little Company. Little Company reported shares outstanding of $350,000 and retained earnings of $100,000. During 20X8, Little Company reported net income of $60,000 and paid dividends of $3,000. In 20X9, Little Company reported net income of $90,000 and paid dividends of $15,000. The following transactions occurred between Big Company and Little Company in 20X8 and 20X9:
Little Co. sold equipment to Big Co. for a $42,000 gain on December 31, 20X8. Little Co. had originally purchased the equipment for $140,000 and it had a carrying value of $28,000 on December 31, 20X8. At the time of the purchase, Big Co. estimated that the equipment still had a seven-year remaining useful life.
Big sold land costing $90,000 to Old Company on June 28, 20X9, for $110,000.
Required: Give all eliminating entries needed to prepare a consolidation worksheet for 20X9 assuming that Big Co. uses the modified equity method to account for its investment in Old Company
Explanation / Answer
1) Dr. Gain in sale of land $20,000
Cr. Land $20,000
(Eliminate gain on purchase of land)
2) Dr. Retained earnings $31,500
Dr. NCI in NA of Little Co $10,500
Dr. Equipment $70,000
Cr. Accumulated depreciation $112,000
(Eliminate gain on equipment and correct asset basis)
3) Dr. Accumulated depreciation $6000
Cr. Depreciation expense $6,000
4) Dr. Common stock $350,000
Dr. Retained earnings $157,000
Dr. Income from Little Co. $67,500
Dr. NCI in NI of Little co. $24,000
Cr. Dividnds declared $15,000
Cr. Investment in Little co. $436,500
Cr. NCI in NA of Little co. $147,000
(Basic elimination entry)
Working:
Equipment
Accumulated dep
Big Co.
70,000
Actual
110,000
70,000
6,000
112,000
Little Co.
140,000
As if
116,000
Undistributed share
NRI share
Total
Downstream land
-20000
-20000
Extra depreciation
4500
1500
6000
Total
-15500
14000
NCI share 25%
Big Co. 75%
Common stock
Retained earnings
Original BV
126,750
380,250
350,000
157,000
Plus: NI
22,500
67,500
90,000
Less: Dividends
-3750
-11,250
-15,000
Ending BV
145,500
436,500
350,000
232,000
Equipment
Accumulated dep
Big Co.
70,000
Actual
110,000
70,000
6,000
112,000
Little Co.
140,000
As if
116,000
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