70.2K

Verified Solution

Link Copied!

On January 1, 20X7, P Company acquired 60 percent of the outstanding common stock of S Company at the book value of the shares acquired. On that date, the fair value of noncontrolling interest was equal to 40 percent of book value of S. At the time of purchase, S had common stock of $1,000,000 outstanding and retained earnings of $800,000.

On December 31, 20X7, P purchased 50 percent of S's bonds outstanding which were originally issued on January 1, 20X4, at 99. The total bond issue has a face value of $600,000, pays 10 percent interest annually, and has a 10-year maturity. Any premium or discount is amortized using the effective interest method. P paid $306,000 for its investment in S's bonds and intends to hold the bonds until maturity.

Income and dividends for P and S for 20X7 and 20X8 are as follows:

	P												S
	Operating Income					Dividends					Net Income							Dividends
20X7		$	1,600,000				$	400,000						$	600,000					$	300,000
20X8			1,200,000					400,000							1,000,000						300,000

Assume P accounts for its investment in S stock using the cost method.

Present the worksheet elimination entries necessary to prepare consolidated financial statements for 20X7.

Answer & Explanation Solved by verified expert

See Answer