Prime Company holds 80 percent of Lane Company’s stock, acquired on January 1, 20X2, for $160,000. On the date of acquisition, L
ane reported retained earnings of $50,000 and $100,000 of common stock outstanding, and the fair value of the noncontrolling interest was $40,000. Prime uses the fully adjusted equity method in accounting for its investment in Lane.
Trial balance data for the two companies on December 31, 20X7, are as follows:
Prime Company Lane Company
Item Debit Credit Debit Credit
Cash & Accounts Receivable $ 151,000 $ 55,000
Inventory 240,000 100,000
Land 100,000 80,000
Buildings and Equipment 500,000 150,000
Investment in Lane Company Stock 201,600
Cost of Goods Sold 160,000 80,000
Depreciation and Amortization 25,000 15,000
Other Expenses 20,000 10,000
Dividends Declared 60,000 35,000
Accumulated Depreciation $ 230,000 $ 60,000
Accounts Payable 60,000 25,000
Bonds Payable 200,000 50,000
Common Stock 300,000 100,000
Retained Earnings 379,600 140,000
Sales 250,000 150,000
Income from Subsidiary 38,000
Total $ 1,457,600 $ 1,457,600 $ 525,000 $ 525,000
Additional Information
1.
At the date of combination, the book values and fair values of Lane’s separately identifiable assets and liabilities were equal. The full amount of the increased value of the entity was attributed to goodwill. At December 31, 20X6, the management of Prime reviewed the amount attributed to goodwill as a result of its purchase of Lane stock and recognized an impairment loss of $18,000. No further impairment occurred in 20X7.
2. On January 1, 20X5, Lane sold land for $18,000 that had cost $8,000 to Prime.
3.
On January 1, 20X6, Prime sold to Lane equipment that it had purchased for $75,000 on January 1, 20X1. The equipment has a total 15-year economic life and was sold to Lane for $70,000. Both companies use straight-line depreciation.
4. Intercompany receivables and payables total $4,000 on December 31, 20X7.
Required:
a.
Prepare a reconciliation between the balance in Prime’s Investment in Lane Company Stock account reported on December 31, 20X7, and Lane’s book value. (Enter the proportion of stock held as a fraction (i.e., 0.75), not in percent.)
b-1.
Prepare all worksheet consolidation entries needed as of December 31, 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
b-2.
Complete a three-part consolidation worksheet for 20X7. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)
Trial balance data for the two companies on December 31, 20X7, are as follows:
Prime Company Lane Company
Item Debit Credit Debit Credit
Cash & Accounts Receivable $ 151,000 $ 55,000
Inventory 240,000 100,000
Land 100,000 80,000
Buildings and Equipment 500,000 150,000
Investment in Lane Company Stock 201,600
Cost of Goods Sold 160,000 80,000
Depreciation and Amortization 25,000 15,000
Other Expenses 20,000 10,000
Dividends Declared 60,000 35,000
Accumulated Depreciation $ 230,000 $ 60,000
Accounts Payable 60,000 25,000
Bonds Payable 200,000 50,000
Common Stock 300,000 100,000
Retained Earnings 379,600 140,000
Sales 250,000 150,000
Income from Subsidiary 38,000
Total $ 1,457,600 $ 1,457,600 $ 525,000 $ 525,000
Additional Information
1.
At the date of combination, the book values and fair values of Lane’s separately identifiable assets and liabilities were equal. The full amount of the increased value of the entity was attributed to goodwill. At December 31, 20X6, the management of Prime reviewed the amount attributed to goodwill as a result of its purchase of Lane stock and recognized an impairment loss of $18,000. No further impairment occurred in 20X7.
2. On January 1, 20X5, Lane sold land for $18,000 that had cost $8,000 to Prime.
3.
On January 1, 20X6, Prime sold to Lane equipment that it had purchased for $75,000 on January 1, 20X1. The equipment has a total 15-year economic life and was sold to Lane for $70,000. Both companies use straight-line depreciation.
4. Intercompany receivables and payables total $4,000 on December 31, 20X7.
Required:
a.
Prepare a reconciliation between the balance in Prime’s Investment in Lane Company Stock account reported on December 31, 20X7, and Lane’s book value. (Enter the proportion of stock held as a fraction (i.e., 0.75), not in percent.)
b-1.
Prepare all worksheet consolidation entries needed as of December 31, 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
b-2.
Complete a three-part consolidation worksheet for 20X7. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)
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