| Comprehensive Problem: Differential Apportionment |
| Mortar Corporation acquired 80 percent ownership of Granite Company on January 1, 20×7, for $173,000. At that date, the fair value of the non-controlling interest was $43,250. The trial balances for two companies on December 31, 20×7, included the following amounts: |
|
Mortar corporation Granite Company |
| Item Debit Credit Debit Credit |
| Cash 38,000 25,000 |
| Accounts Receivable 50,000 55,000 |
| Inventory 240,000 100,000 |
| Land 80,000 20,000 |
| buildings & Equipment 500,000 150,000 |
| Investment in Granite Company Stock 202,000 |
| cost of Goods Sold 500,000 250,000 |
| Depreciation Expense 25,000 15,000 |
| other expenses 75,000 75,000 |
| Dividends declared 50,000 20,000 |
| Accumulated Depreciation 155,000 75,000 |
| Accounts Payable 70,000 35,000 |
| Mortgages Payable 200,000 50,000 |
| Common Stock 300,000 50,000 |
| Retained Earnings 290,000 100,000 |
| Sales 700,000 400,000 |
| Income for Subsidiary 45,000 |
|
1,760,000 1,760,000 710,000 710,000 |
| Additional information |
| 1. On January 1, 20×7, Granite reported net assets with a book value of $150,000 and a fair value of $191,250. |
| 2. Granite’s depreciable assets had an estimated economic life of 11 years on the date of combination. The difference between fair value and book value of Granite’s net assets is related entirely to buildings and equipment. |
| 3. Mortar used the equity method in accounting for its investment in Granite. |
| 4. Detailed analysis of receivables and payables showed that Granite owed Mortar $16,000 on December 31,20×7. |
| 5. Assume that any goodwill impairment should be recorded as an adjustment in Mortar’s equity method accounts along with the amortization of other differential components. |
| Required |
| Give all journal entries recorded by Mortar with regard to its investment in Granite during 20×7. Give all eliminating entries needed to prepare a full set of consolidated financial statements for 20×7. Prepare a three- part consolidation worksheet as of December 31,20×7. |
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