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Consolidated Financial Worksheet

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Crane Mechanics acquired 75 percent of Downey Enterprises on March 31, 2005, for $3,645,000. Downey's book value at that date totaled $4,000,000. Appraisal values were greater than book values for identifiable assets in the following amounts: Inventory ($300,000) and Plant and Equipment ($700,000). The purchase differential for Inventory is to be amortized over five months and Plant and Equipment over ten years. For the remainder of 2005 Downey reports $635,000 of income and pays $100,000 in dividends. The following balances exist for Crane at December 31, 2005, and Downey at March 31 and December 31.

Crain Downey
12/31 3/31 12/31
Cash $730,000 $175,000 $180,000
Inventory 1,950,000 260,000 340,000
Plant and Equipment 17,650,000 5,150,000 5,765,000
Accumulated Depreciation (4,655,000) (935,000) (1,250,000)
Investment in Downey 3,886,875
Expenses 6,400,000 1,000,000 4,265,000
Dividends 1,275,000 150,000 250,000
Total Debits $27,236,875 $5,800,000 $9,550,000
Liabilities $3,550,000 $650,000 $500,000
Common Stock 350,000 100,000 100,000
Additional Paid-In Capital 2,650,000 850,000 850,000
Retained Earnings 9,720,000 2,800,000 2,800,000
Sales 10,650,000 1,400,000 5,300,000
Total Credits $27,236,875 $5,800,000 $9,550,000

Extraordinary Gain From Acquisition of Downey 105,000
Investment Income 211,875

Required:

a) Record the journal entries necessary on Crain's books for 2005 assuming that Crain uses the equity method to account for its investment in Downey.
b) Prepare all worksheet eliminations in journal entry form necessary to consolidate Crain and Downey at December 31, 2005.
c) Prepare the consolidation worksheet for Crain and Downey at December 31, 2005.

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Solution Summary

The journal entries are recorded and consolidated in an Excel attachment.

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Background and Information

Palus Corporation acquired 90 percent of Stalus Company's voting stock on January 1, 2010. The price paid was $145,000. The excess of costs over book value was $10,000, which should be attributed to goodwill and must be amortized over 10 years. The fair value of the non-controlling (minority) interest was equal to 10 percent of the book value of Stalus at that date. Palus uses the equity method in accounting for its ownership of Stalus during the year 2010. Income during the year was $30,000 for Stalus and the company also declared dividends of $10,000. On December 31, 2010, the trial balances of the two companies are as follows:

See the attached file for data.

Required

a. Prepare all eliminating journal entries required as of December 31, 2010, to prepare the consolidated worksheet.
b. Prepare a **"condensed" multilevel consolidation worksheet showing the trial balance, eliminations, and adjustments, the minority interest, controlling retained earnings, consolidated income statement, and consolidated balance sheet.
c. Prepare the formally consolidated balance sheet, income statement, and retained earnings statements as of December 31, 2010.

**You may condense the assets (net of liabilities) in order to shorten the trial balance and worksheet

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