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PROBLEM $5-3$

Workpaper Entries and Consolidated Net Income, Complete Equity Method LO $5$ LO $6,$ LO $3$

Perke Corporation purchased $80\%$ of the stock of Superstition Company for $$1,970,000$ on January $1,2020.$ On this date,

the fair value of the assets and liabilities of Superstition Company was equal to their book value except for the inventory

and equipment accounts. The inventory had a fair value of $$725,000$ and a book value of $$600,000.$ Sixty percent of

Superstition Company's inventory was sold in $2020$; the remainder was sold in $2021.$ The equipment had a book value of

$$900,000$ and a fair value of $$1,075,000.$ The remaining useful life of the equipment is seven years.

The balances in Superstition Company's capital stock and retained earnings accounts on the date of acquisition were

$$1,200,000$ and $$600,000,$ respectively. Perke uses the complete equity method to account for its investment in

Superstition. The following financial data are from Superstition Company's records.

Required:

A$.$ In general journal form, prepare the entries on Perke Company's books to account for its investment in Superstition

Company for $2020$ and $2021.$

B$.$ Prepare the eliminating entries necessary for the consolidated statements workpapers in $2020$ and $2021.$

C$.$ Assuming Perke Corporation's net income for $2020$ was $$1,000,000,$ calculate the controlling interest in consolidated

net income for $2021.$

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