On January 1, 2020, James Company purchased 100% of the outstanding voting stock of Nolan, Inc., for $1,000,000 in cash and other consideration. At the purchase date, Nolan had common stock of $500,000 and retained earnings of $185,000. James attributed the excess of acquisition-date fair value over Nolan's book value to a trade name with an estimated 25-year remaining useful life. James uses the equity method to account for its investment in Nolan. During the next 2 years, Nolan reported the following. Income Dividends Declared Inventory Transfers to James at Transfer Price 2020 $78,000 $25,000 $190,000 2021 85,000 27,000 210,000 Nolan sells inventory to James after a markup based on a gross profit rate. At the end of 2020 and 2021, 30% of the current year purchases remain in James's inventory. Using the attached Excel template, compute the following. The Equity Method balance in James' Investment in Nolan, Inc., account as of December 31, 2021 Worksheet adjustments for the December 31, 2021 adjustments of James and NolanUse the following codes to designate the purpose of the journal entry.Consolidation entries: (*G) Recognition of intra-entity beginning inventory gross profit in current period, consolidated net income. Downstream sales are attributed to parent. (S) Elimination of subsidiary's stockholders' equity accounts along with recognition of the noncontrolling interest as of January 1. (A) Allocation of excess fair value over subsidiary's book value, unarmortized balance as of January 1. (I) Elimination of intra-entity income remaining after *G elimination. (D) Elimination of intra-entity dividend. (E) Recognition of amortization expense for current year on excess fair value allocated to database. (P) Elimination of intro-entity receivable/payable balances. (TI) Elimination of intra-entity sales/purchases balances. (G) Deferral of intra-entity inventory gross profit from current period consolidated net income and removal of intra-entity gross profit form ending inventory

On January 1, 2020, James Company purchased 100% of the outstanding voting stock of Nolan, Inc., for $1,000,000 in cash and other consideration. At the purchase date, Nolan had common stock of $500,000 and retained earnings of $185,000. James attributed the excess of acquisition-date fair value over Nolan's book value to a trade name with an estimated 25-year remaining useful life. James uses the equity method to account for its investment in Nolan. During the next 2 years, Nolan reported the following. Income Dividends Declared Inventory Transfers to James at Transfer Price 2020 $78,000 $25,000 $190,000 2021 85,000 27,000 210,000 Nolan sells inventory to James after a markup based on a gross profit rate. At the end of 2020 and 2021, 30% of the current year purchases remain in James's inventory. Using the attached Excel template, compute the following. The Equity Method balance in James' Investment in Nolan, Inc., account as of December 31, 2021 Worksheet adjustments for the December 31, 2021 adjustments of James and NolanUse the following codes to designate the purpose of the journal entry.Consolidation entries: (G) Recognition of intra-entity beginning inventory gross profit in current period, consolidated net income. Downstream sales are attributed to parent. (S) Elimination of subsidiary's stockholders' equity accounts along with recognition of the noncontrolling interest as of January 1. (A) Allocation of excess fair value over subsidiary's book value, unarmortized balance as of January 1. (I) Elimination of intra-entity income remaining after G elimination. (D) Elimination of intra-entity dividend. (E) Recognition of amortization expense for current year on excess fair value allocated to database. (P) Elimination of intro-entity receivable/payable balances. (TI) Elimination of intra-entity sales/purchases balances. (G) Deferral of intra-entity inventory gross profit from current period consolidated net income and removal of intra-entity gross profit form ending inventory

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 25E

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Question

During the next 2 years, Nolan reported the following.

	Income	Dividends Declared	Inventory Transfers to James at Transfer Price
2020	$78,000	$25,000	$190,000
2021	85,000	27,000	210,000

Nolan sells inventory to James after a markup based on a gross profit rate. At the end of 2020 and 2021, 30% of the current year purchases remain in James's inventory.

Using the attached Excel template, compute the following.

The Equity Method balance in James' Investment in Nolan, Inc., account as of December 31, 2021
Worksheet adjustments for the December 31, 2021 adjustments of James and Nolan
Use the following codes to designate the purpose of the journal entry.

Consolidation entries:
1. (*G) Recognition of intra-entity beginning inventory gross profit in current period, consolidated net income. Downstream sales are attributed to parent.
2. (S) Elimination of subsidiary's stockholders' equity accounts along with recognition of the noncontrolling interest as of January 1.
3. (A) Allocation of excess fair value over subsidiary's book value, unarmortized balance as of January 1.
4. (I) Elimination of intra-entity income remaining after *G elimination.
5. (D) Elimination of intra-entity dividend.
6. (E) Recognition of amortization expense for current year on excess fair value allocated to database.
7. (P) Elimination of intro-entity receivable/payable balances.
8. (TI) Elimination of intra-entity sales/purchases balances.
9. (G) Deferral of intra-entity inventory gross profit from current period consolidated net income and removal of intra-entity gross profit form ending inventory

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