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P5-38
Comprehensive Problem: Differential Apportionment
Mortar Corporation acquired 80 percent ownership of Granite
Company on January 1, 20×7, for $173,000. At that date, the fair
value of the non-controlling interest was $43,250. The trial
balances for two companies on December 31, 20×7, included the
following amounts:

 

Mortar corporation

Granite Company

Item

Debit

Credit

Debit

Credit

Cash

38,000

 

25,000

 

Accounts Receivable

50,000

 

55,000

 

Inventory

240,000

 

100,000

 

Land

80,000

 

20,000

 

buildings & Equipment

500,000

 

150,000

 

Investment in Granite Company Stock

202,000

 
 
 

cost of Goods Sold

500,000

 

250,000

 

Depreciation Expense

25,000

 

15,000

 

other expenses

75,000

 

75,000

 

Dividends declared

50,000

 

20,000

 

Accumulated Depreciation

 

155,000

 

75,000

Accounts Payable

 

70,000

 

35,000

Mortgages Payable

 

200,000

 

50,000

Common Stock

 

300,000

 

50,000

Retained Earnings

 

290,000

 

100,000

Sales

 

700,000

 

400,000

Income for Subsidiary

 

45,000

 

 

 

1,760,000

1,760,000

710,000

710,000

 
Additional information

 

 

 

 

On January 1, 20×7, Granite reported net assets with a book
value of $150,000 and a fair value of $191,250.
Granite’s depreciable assets had an estimated economic life of
11 years on the date of combination. The difference between fair
value and book value of Granite’s net assets is related entirely to
buildings and equipment.
Mortar used the equity method in accounting for its investment
in Granite.
Detailed analysis of receivables and payables showed that
Granite owed Mortar $16,000 on December 31,20×7.
Assume that any goodwill impairment should be recorded as an
adjustment in Mortar’s equity method accounts along with the
amortization of other differential components.

Required
Give all journal entries recorded by Mortar with regard to its
investment in Granite during 20×7. Give all eliminating entries
needed to prepare a full set of consolidated financial statements
for 20×7. Prepare a three- part consolidation worksheet as of
December 31,20×7.

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