-On January 1, 2020, Wondersome Company acquired a 70% interest in Philmore Company for a purchase price that was $240,000 over the book value of the Philmore’s Stockholders’ Equity on the acquisition date.  Wondersome uses the cost method to account for its investment in Philmore. On the date of acquisition, Philmore’s retained earnings balance was $350,000. Wondersome assigned the acquisition-date AAP as follows: AAP Items Initial Fair Value Useful Life (years) PPE, net 90,000 20 Patent    150,000 10   $350,000   Philmore sells inventory to Wondersome (upstream) which includes that inventory in products that it, ultimately, sells to customers outside of the controlled group.  You have compiled the following data for the years ending 2022 and 2023:   2022 2023 Transfer price for inventory sale $94,500 $70,000 Cost of goods sold -64,500 -45,000 Gross profit $30,000 $25,000 % inventory remaining 30% 20% Gross profit deferred $9,000 $5,000       EOY Receivable/Payable $32,000 $29,500 The inventory not remaining at the end of the year has been sold outside of the controlled group. The parent and the subsidiary report the following financial statements at December 31, 2023: Income Statement   Wondersome Philmore Sales $2,400,000 $602,400 Cost of goods sold -1,580,000 -465,398 Gross Profit 820,000 137,002 Income (loss) from subsidiary 10,500   Operating expenses -711,200 -56,000 Net income $119,300 $81,002   Statement of Retained Earnings   Wondersome Philmore BOY Retained Earnings $3,360,350 $608,000 Net income 119,300 81,002 Dividends -85,000 -15,000 EOY Retained Earnings $3,394,650 $674,002   Balance Sheet   Wondersome Philmore Assets:     Cash $450,000 $84,700 Accounts receivable 425,000 113,200 Inventory 654,000 142,100 Investment in subsidiary 634,550   PPE, net 4,432,100 1,000,002   $6,595,650 $1,340,002       Liabilities and Stockholders’ Equity:     Current Liabilities $505,900 $99,500 Long-term Liabilities 703,500 250,000 Common Stock 402,000 75,300 APIC 1,589,600 241,200 Retained Earnings 3,394,650 674,002   $6,595,650 $1,340,002 Required: a. Compute the EOY noncontrolling interest equity balance b. Prepare the consolidation journal entries

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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5-On January 1, 2020, Wondersome Company acquired a 70% interest in Philmore Company for a purchase price that was $240,000 over the book value of the Philmore’s Stockholders’ Equity on the acquisition date.  Wondersome uses the cost method to account for its investment in Philmore. On the date of acquisition, Philmore’s retained earnings balance was $350,000. Wondersome assigned the acquisition-date AAP as follows:

AAP Items

Initial Fair Value

Useful Life (years)

PPE, net

90,000

20

Patent

   150,000

10

 

$350,000

 

Philmore sells inventory to Wondersome (upstream) which includes that inventory in products that it, ultimately, sells to customers outside of the controlled group.  You have compiled the following data for the years ending 2022 and 2023:

 

2022

2023

Transfer price for inventory sale

$94,500

$70,000

Cost of goods sold

-64,500

-45,000

Gross profit

$30,000

$25,000

% inventory remaining

30%

20%

Gross profit deferred

$9,000

$5,000

 

 

 

EOY Receivable/Payable

$32,000

$29,500

The inventory not remaining at the end of the year has been sold outside of the controlled group.

The parent and the subsidiary report the following financial statements at December 31, 2023:

Income Statement

 

Wondersome

Philmore

Sales

$2,400,000

$602,400

Cost of goods sold

-1,580,000

-465,398

Gross Profit

820,000

137,002

Income (loss) from subsidiary

10,500

 

Operating expenses

-711,200

-56,000

Net income

$119,300

$81,002

 

Statement of Retained Earnings

 

Wondersome

Philmore

BOY Retained Earnings

$3,360,350

$608,000

Net income

119,300

81,002

Dividends

-85,000

-15,000

EOY Retained Earnings

$3,394,650

$674,002

 

Balance Sheet

 

Wondersome

Philmore

Assets:

 

 

Cash

$450,000

$84,700

Accounts receivable

425,000

113,200

Inventory

654,000

142,100

Investment in subsidiary

634,550

 

PPE, net

4,432,100

1,000,002

 

$6,595,650

$1,340,002

 

 

 

Liabilities and Stockholders’ Equity:

 

 

Current Liabilities

$505,900

$99,500

Long-term Liabilities

703,500

250,000

Common Stock

402,000

75,300

APIC

1,589,600

241,200

Retained Earnings

3,394,650

674,002

 

$6,595,650

$1,340,002

Required:
a. Compute the EOY noncontrolling interest equity balance
b. Prepare the consolidation journal entries.

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