Question

On January 1, 2014, Pirate Company acquired an 80% interest in Sun Company for $425,000. On that date, Sun reported stockholder’s equity of $400,000: $100,000 in common stock and $300,000 in retained earnings. In setting the acquisition price, Pirate appraised three accounts at values different from the balances reported within Sun’s financial records: Buildings (8-year remaining life): Undervalued by $32,500 Land: Undervalued by $50,000 Royalty agreement (20-year remaining life): Not previously recorded; Valued at $30,000 At December 31, 2018, the trial balances of these two companies are as follows in DEBIT / (CREDIT) format: Included in these figures is a $20,000 payable that Sun owes to the parent company. No goodwill impairments have occurred since the acquisition date. REQUIRED: a. Prepare the elimination entries that would be required for consolidation for 2018. b. Determine the consolidated totals of each item above for 2018. Pirate Company Sun Company Current Assets 605,000               280,000               Investment in Sun Company 425,000               ?                        Land 200,000               300,000               Buildings (net) 640,000               290,000               Equipment (net) 380,000               160,000               Royalty Agreement ?                        ?                        Goodwill ?                        ?                        Current Liabilities (910,000)             (300,000)             Common Stock (480,000)             (100,000)             Retained Earnings, 1/1/18 (704,000)             (480,000)             Dividends Declared 90,000                 20,000                 Noncontrolling Interest ?                        ?                        Revenues (780,000)             (360,000)             Dividend Income (16,000)                ?                        Expenses 550,000               190,000

Answer 1

Particulars	Private	Sun	Adjustment	Elimination	Consolidated
Equity and Liabilities
Shareholders Equity
Common Stock	$4,80,000	$1,00,000	$0	-$1,00,000	$4,80,000
Retained earnings	$8,60,000	$6,30,000	$1,12,500	-$4,78,500	$11,24,000
Non Controlling Interest	$0	$0	$0	$1,68,500	$1,68,500
Current Liabilities	$9,10,000	$3,00,000	-$20,000	$0	$11,90,000
Total	$22,50,000	$10,30,000	$92,500	-$4,10,000	$29,62,500
Assets
Land	$2,00,000	$3,00,000	$50,000	$0	$5,50,000
Building	$6,40,000	$2,90,000	$32,500	$0	$9,62,500
Equipment	$3,80,000	$1,60,000	$0	$0	$5,40,000
Royalty Agreement	$0	$0	$30,000	$0	$30,000
Goodwill on colsolidation	$0	$0	$0	$15,000	$15,000	W.N.1
Current Assets	$6,05,000	$2,80,000	-$20,000	$0	$8,65,000
Investment in sun	$4,25,000	$0	$0	-$4,25,000	$0
Total	$22,50,000	$10,30,000	$92,500	-$4,10,000	$29,62,500
Profit and loss	Private	Sun
Revenue	$7,80,000	$3,60,000
Dividend Income	$16,000	$0
	$7,96,000	$3,60,000
Expenses	$5,50,000	$1,90,000
Net Income	$2,46,000	$1,70,000
Opening Retianed earning	$7,04,000	$4,80,000
	$9,50,000	$6,50,000
Dividend Declared and paid	$90,000	$20,000
Closing retained earning	$8,60,000	$6,30,000
W.N.1
particulars	$
Common shares	$80,000
retained earnings	$2,40,000
Building	$26,000
Land	$40,000
Royalty Agreement	$24,000
	$4,10,000
Investment made	$4,25,000
Good will on colsolidation	$15,000