Pineapple Company acquired an 80% interest in Samsung Company for $272,000 cash on January 1, 2018. Samsung had the following Balance Sheet on the date of acquisition:
Assets |
$ |
Liabilities |
$ |
Accounts receivable |
90,000 |
Accounts payable |
50,000 |
Depreciable fixed asstes |
200,000 |
Bonds payable |
50,000 |
Land |
50,000 |
Discount on bonds payable |
(1,620) |
Goodwill |
10,000 |
Comm stock ($10 par) |
100,000 |
|
|
Retained Earnings |
151,620 |
Total Asstes |
350,000 |
Total liabilities & Equity |
350,000 |
The excess of the price paid over book value is attributable to the Depreciable Fixed Assets, which have a fair
value of $260,000. The Depreciable Assets have a 10 year remaining life.
Samsung sold a piece of Land to Pineapple for $60,000 on January 1, 2019. It cost Samsung $50,000 to purchase
the land.
On January 1, 2020, Samsung held merchandise acquired from Pineapple for $20,000. This beginning inventory
had an applicable gross profit of 40%. During 2020, Pineapple sold $60,000 worth of merchandise to Samsung.
Samsung held $30,000 of this merchandise at December 31, 2020. This ending inventory and an applicable gross
profit of 35%. Samsung owed Pineapple $23,000 on December 31, 2020 as a result of these intercompany sales.
On January 1, 2020, Pineapple held merchandise acquired from Samsung for $10,000. This beginning inventory
had an applicable gross profit of 25%. During 2020, Samsung sold $40,000 worth of merchandise to Pineapple.
Pineapple held $6,000 of this merchandise at December 31, 2020. This ending inventory had an applicable gross
profit of 30%. Pineapple owed Samsung $11,000 on December 31, 2020 as a result of these intercompany sales.
On January 1, 2017, Samsung received $48,055 for $50,000 of 8%, 5 year bonds it issued when the market rate
was 9%. When Pineapple purchased these bonds for $47,513 on January 1, 2019, the market rate was 10%. Both
companies use the Effective Interest method to amortize the premium/discount on the bonds.
Pineapple used the following bond amortization schedules:
Period |
Nominal Interest $ |
Effective interest $ |
Balance $ |
Jan 2019 |
|
|
47,513 |
Jan 1 2020 |
4,000 |
4,751 |
48,264 |
Jan 1 2021 |
4,000 |
4,826 |
49,090 |
Jan 1 2022 |
4,000 |
4,909 |
50,000 |
Samsung used the following bond amortization schedules:
Period |
Nominal interest $ |
effective intered $ |
Balance $ |
Jan 1 2017 |
|
|
48,055 |
Jan 1 2018 |
4,000 |
4,325 |
48,380 |
Jan 1 2019 |
4,000 |
4,354 |
48,734 |
Jan 1 2020 |
4,000 |
4,386 |
49,120 |
Jan 1 2021 |
4,000 |
4,421 |
49,541 |
Jan 1 2022 |
4,000 |
4,459 |
50,000 |
Pineapple and Samsung had the following trial balances on December 31, 2020:
Balance |
Pineapple |
Samsung |
Accounts receivable |
124,000 |
85,000 |
Iventory |
6,000 |
30,000 |
Depreciable fixed assets |
400,000 |
200,000 |
Accumulated depreciation |
(130,000) |
(40,000) |
Land |
60,000 |
|
Investment in subsidiary |
272,000 |
|
Investment in subsidiary bonds |
49,090 |
|
Goodwill |
|
10,000 |
Accounts payable |
(80,000) |
|
Bonds payable |
|
(50,000) |
Discount on bonds payable |
|
459 |
Common stock |
(300,000) |
(100,000) |
Retained Earning, Jan 1 |
(348,264) |
(134,880) |
Sales |
(200,000) |
(100,000) |
Expenses |
160,000 |
85,000 |
Interest revenue |
(4,826) |
|
Interest expense |
|
4,421 |
Dividend income (from subsidiary) |
(8,000) |
|
Dividends declared |
0 |
10,000 |
Total |
0 |
0 |
Prepare the Eliminating and Adjusting Entries, complete the schedules and worksheet necessary to produce the consolidated financial statements of Pineapple Company and its subsidiary for the year ended December 31, 2020.