On January 1, 2016, Pilsner Company acquired an 80% interest in Smalley Company for $3,600,000. On that date, Smalley Company had retained earnings of $800,000 and common stock of $2,800,000. The book values of assets and liabilities were equal to fair values except for the following: Book Value Fair Value Inventory $ 50,000 $ 85,000 Equipment (net) 540,000 720,000 Land 300,000 660,000 The equipment had an estimated remaining useful life of 8 years. One-half of the inventory was sold in 2016 and the remaining half was sold in 2017. Smalley Company reported net income of $240,000 in 2016 and $300,000 in 2017. No dividends were declared or paid in either year. Pilsner Company uses the cost method to record its investment in Smalley Company. Required: Prepare, in general journal form, the workpaper eliminating entries necessary in the consolidated statements workpaper for the year ending December 31, 2017.

On January 1, 2016, Pilsner Company acquired an 80% interest in Smalley Company for $3,600,000. On that date, Smalley Company had retained earnings of $800,000 and common stock of $2,800,000. The book values of assets and liabilities were equal to fair values except for the following: Book Value Fair Value Inventory $ 50,000 $ 85,000 Equipment (net) 540,000 720,000 Land 300,000 660,000 The equipment had an estimated remaining useful life of 8 years. One-half of the inventory was sold in 2016 and the remaining half was sold in 2017. Smalley Company reported net income of $240,000 in 2016 and $300,000 in 2017. No dividends were declared or paid in either year. Pilsner Company uses the cost method to record its investment in Smalley Company. Required: Prepare, in general journal form, the workpaper eliminating entries necessary in the consolidated statements workpaper for the year ending December 31, 2017.

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter16: Advanced Topics Concerning Complex Auditing Judgments

Section: Chapter Questions

Problem 55RSCQ

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On January 1, 2018, Powers Company acquired 80% of the ordinary share of Scullery Company for $195,000. On this date Scullery had total owners' equity of $200,000 (ordinary share, premium ordinary and retained earnings of $10,000, $90,000, and $100,000 respectively). In that date inventory undervalued $6,250 and equipment undervalued $12,500. The equipment has a remaining life of five years and straight-line depreciation is used. The following transaction occurred during 2018 and 2019: 1) On December 31, 2018, Powers sold equipment to Scullery at a gain of $10,000. During 2019, the equipment was used by Scullery. Depreciation is being computed using the straight-line method, a five-year life, and no salvage value. 2) during 2018scullery sold merchandise inventory 120,000 to powers with gross profit 25% which sold all except 20,000 3) On July 1, 2018 Scullery sold land $100,000 to Powers including 10,000 gain. 4) 1/1/2019 Scullery sold a truck to Powers for 70,000 and book value 50,000…
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