Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Dem

Question

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired.

Demers earns income and pays dividends as follows:         2014.             2015.             2016
net income. 100000.    120000.        130000
dividends.     40000.       50000.         60000

Assume the partial equity method is applied.
Make journal entry C if consolidation worksheet is to prepared

Explanation / Answer

Journal entry C for retained earnings as Pell company acquires 80% in demers company it has total of $210000 retained earnings so entry is

Investment in demers compay a/c dr $168,000

   to retained earnings a/c $ 168,000

80% of 210000

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