Question

Craine Company acquired an 80 percent interest in Bates Company on January 1, 2019. Craine paid $896,000 in cash to the owners of Bates to acquire these shares. In addition, the remaining 20 percent of Bates shares continued to trade at a total value of $224,000 both before and after Craine’s acquisition.

On January 1, 2019, Bates reported a book value of $626,000 (Common Stock = $313,000; Additional Paid-In Capital = $93,900; Retained Earnings = $219,100). Several of Bates’ buildings that had a remaining life of 20 years were undervalued by a total of $83,400.

During the next three years, Bates reports income and declares dividends as follows:

In 2019:

Net income $73,100

Dividends 10,500

In 2020:

Net income $94,500

Dividends 15,800

In 2021:

Net income $105,300

Dividends 21,100

Required:

If a consolidation worksheet is prepared as of January 1, 2019, what Entry S and Entry A should be included?

Clearly label which accounts should be debited or credited. Do not worry about indenting the credit account, simply label the debits and credits. An example is provided below:

Debit: Cash 20,000

Debit: Machine 10,000

Credit: Accounts payable 5,000

Credit: Equity 25,000

Answer 1

Solution: