Reference no: EM132616412

Panda Corporation has an 80% ownership stake in Smile Inc. when the book values were equal to the fair values. Separate income statements of Panda Corporation and its subsidiary, Smile Inc., for 2019 were as follows:

                                              Panda                           Smile

Sales Revenue               $2,200,000           $1,000,000

Cost of sales                 (1,400,000)             (600,000)

Other expenses               (400,000)              (200,000)

Gain on sale- equipment      100,000

Income from Smile                131,000

Net income                           $631,000                 $200,000

Additional information:

• Panda had sold inventory that cost $160,000 to Smile for $300,000 in 2018, 50% of that inventory remained unsold at year-end. Panda had sold inventory that cost $140,000 to Smile for $200,000 in 2019, 40% of that inventory remained unsold at year-end. The 2018 ending inventory is sold in 2019.
• Panda sold equipment with a book value of $120,000 and a 4-year remaining useful life to Smile for $220,000 on January 2, 2019. The equipment has no salvage value. The straight-line depreciation method is used.
• Smile did not declare or pay dividends in 2018 and 2019.

Required:

Problem 1. Elimination entries for the consolidation worksheet at December 31, 2019.

Problem 2. Consolidated income statement for Panda Corporation and Subsidiary for the year ended December 31, 2019. Show all your calculations.