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intercompany transfer of inventory pine corporation acquired 70 percent of bock comp 733486

Intercompany Transfer of Inventory

Pine Corporation acquired 70 percent of Bock Company’s voting common shares on January 1, 20X2, for $108,500. At that date, the noncontrolling interest had a fair value of $46,500 and Bock reported $70,000 of common stock outstanding and retained earnings of $30,000. The differential is assigned to buildings and equipment, which had a fair value $20,000 higher than book value and a remaining 10 year life, and to patents, which had a fair value $35,000 higher than book value and a remaining life of five years at the date of the business combination. Trial balances for the companies as of December 31, 20X3, are as follows:

Pine Corporation

Bock Company

Item

Debit

Credit

Debit

Credit

Cash & Accounts Receivable

$ 15,400

$ 21,600

Inventory

165,000

35,000

Land

80,000

40,000

Buildings & Equipment

340,000

260,000

Investment in Bock Company Stock

109,600

Cost of Goods Sold

186,000

79,800

Depreciation Expense

20,000

15,000

Interest Expense

16,000

5,200

Dividends Declared

30,000

15,000

Accumulated Depreciation

$140,000

$ 80,000

Accounts Payable

92,400

35,000

Bonds Payable

200,000

100,000

Bond Premium

1,600

Common Stock

120,000

70,000

Retained Earnings

127,900

60,000

Sales

260,000

125,000

Other Income

13,600

Income from Subsidiary

8,100

$962,000

$962,000

$471,600

$471,600

On December 31, 20X2, Bock purchased inventory for $32,000 and sold it to Pine for $48,000. Pine resold $27,000 of the inventory (i.e., $27,000 of the $48,000 acquired from Bock) during 20X3 and had the remaining balance in inventory at December 31, 20X3.

During 20X3, Bock sold inventory purchased for $60,000 to Pine for $90,000, and Pine resold all but $24,000 of its purchase. On March 10, 20X3, Pine sold inventory purchased for $15,000 to Bock for $30,000. Bock sold all but $7,600 of the inventory prior to December 31, 20X3. Assume Pine uses the fully adjusted equity method, that both companies use straight line depreciation, and that no property, plant, and equipment has been purchased since the acquisition.

Required

a. Give all elimination entries needed to prepare a full set of consolidated financial statements at December 31, 20X3, for Pine and Bock.

b. Prepare a three part consolidation worksheet for 20X3.

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