Pop Corporation acquired 70 percent of Soda Company's voting common shares on January 1, 20X2, for $108,500. At that date, the noncontrolling interest had a fair value of $46,500 and Soda reported $70,000 of common stock outstanding and retained earnings of $30,000. The differential is assigned to buildings and equipment, which had a fair value $20,000 higher than book value and a remaining 10-year life, and to patents, which had a fair value $35,000 higher than book value and a remaining life of five years at the date of the business combination. Trial balances for the companies as of December 31, 20X3, are as follows:
|
Pop Corporation |
|
Soda Company |
|
Item |
|
Debit |
|
Credit |
|
Debit |
|
Credit |
|
Cash & Accounts Receivable |
|
$ |
15,400 |
|
|
|
|
|
$ |
21,600 |
|
|
|
|
|
|
Inventory |
|
|
165,000 |
|
|
|
|
|
|
35,000 |
|
|
|
|
|
|
Land |
|
|
80,000 |
|
|
|
|
|
|
40,000 |
|
|
|
|
|
|
Buildings & Equipment |
|
|
340,000 |
|
|
|
|
|
|
260,000 |
|
|
|
|
|
|
Investment in Soda Company |
|
|
109,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold |
|
|
186,000 |
|
|
|
|
|
|
79,800 |
|
|
|
|
|
|
Depreciation Expense |
|
|
20,000 |
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
Interest Expense |
|
|
16,000 |
|
|
|
|
|
|
5,200 |
|
|
|
|
|
|
Dividends Declared |
|
|
30,000 |
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
Accumulated Depreciation |
|
|
|
|
$ |
140,000 |
|
|
|
|
|
|
$ |
80,000 |
|
|
Accounts Payable |
|
|
|
|
|
92,400 |
|
|
|
|
|
|
|
35,000 |
|
|
Bonds Payable |
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
100,000 |
|
|
Bond Premium |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600 |
|
|
Common Stock |
|
|
|
|
|
120,000 |
|
|
|
|
|
|
|
70,000 |
|
|
Retained Earnings |
|
|
|
|
|
127,900 |
|
|
|
|
|
|
|
60,000 |
|
|
Sales |
|
|
|
|
|
260,000 |
|
|
|
|
|
|
|
125,000 |
|
|
Other Income |
|
|
|
|
|
13,600 |
|
|
|
|
|
|
|
|
|
|
Income from Soda Company |
|
|
|
|
|
8,100 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
962,000 |
|
$ |
962,000 |
|
|
$ |
471,600 |
|
|
$ |
471,600 |
|
|
|
On December 31, 20X2, Soda purchased inventory for $32,000 and sold it to Pop for $48,000. Pop resold $27,000 of the inventory (i.e., $27,000 of the $48,000 acquired from Soda) during 20X3 and had the remaining balance in inventory at December 31, 20X3.
During 20X3, Soda sold inventory purchased for $60,000 to Pop for $90,000, and Pop resold all but $24,000 of its purchase. On March 10, 20X3, Pop sold inventory purchased for $15,000 to Soda for $30,000. Soda sold all but $7,600 of the inventory prior to December 31, 20X3. Assume Pop uses the fully adjusted equity method, that both companies use straight-line depreciation, and that no property, plant, and equipment has been purchased since the acquisition.
Help with below:
- Record the deferral of the unrealized profit on inventory transfers from 20X2.
Note: Enter debits before credits.
|
|
Entry |
Accounts |
Debit |
Credit |
|---|
6 |
NCI in NA of Soda Company |
|
|
|
Investment in Soda Company |
|
|
|
Inventory |
|
|
|
|
|