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On January 1, 2012, P Company acquires an 80 percent interest in S Company. The cost of the acquisition which is for cash in the open market, is...
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On January 1, 2012, P Company acquires an 80 percent interest in S Company. The cost of the acquisition which is for cash in the open market, is $700,000. The value of the noncontrolling interest at the date of purchase was $175,000. On the date of acquisition, S Company has Capital Stock of $250,000 and Retained Earnings of $150,000. In their evaluation of the fair values of the assets and liabilities of S Company, the management of P Company determines that only one asset, building has a fair value different from book value. The fair value of the building, (which is included in Plant Assets) was $85,000 higher than its book value. The building has a remaining life of 4 years.The affiliates regularly engage in transactions with each other. During 2012 and 2013, S Company had the following sales to P Company:YearCost to STransfer price to P CoEnding Balance (at transfer price)2012$80,000$100,000$18,0002013$56,000$80,000$6,000S Company sold a piece of Land to P Company on January 1, 2012 for $50,000. The original cost of the land was $20,000. P Company accounts for its investment in S Company using the equity method.REQUIRED:1.Prepare an allocation of excess.2.Prepare eliminating journal entires (need to write out the journal entries).3.Finish the consolidated financial statement working papers for P Company and S Company for the year ended December 31, 2013.
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