Reference no: EM132704699

On January 1, 2020, Pilsner Company acquired a 90% interest in Smalley Company for $3,600,000. On that date, Smalley Company had common stock of $800,000 and retained earnings of $2,800,000. The book values of assets and liabilities were equal to fair values except for the following:

                                 Book Value             Fair Value
Inventory              $ 50,000                      $ 56,000
Supplies                8,000                             6,000
Salaries Payable        3,500                            4,100
Equipment (net)          540,000                    620,000
Land                        300,000                   460,000

• The inventory was sold in 2020. The equipment had an estimated remaining useful life of 8 years. Pilsner Company uses the cost method to record its investment in Smalley Company.

Required:

Problem 1: Prepare all the workpaper entry to allocate, amortize, and depreciate the difference between implied and book value on: (a) 1/1/2020,
(b) 12/31/2020 and
(c) 12/31/2021.