Record the equity entries made by Alpha

Reference no: EM132831033

Question - Alpha Corporation purchased 70% of Beta Company on January 1, 2015, for $98,000. On that date, the non-controlling interest had a fair value of $42,000 and Beta reported common stock outstanding of $100,000 and retained earnings of $20,000. The differential is partially comprised of $5,000 related to excess value of buildings and equipment. These assets have a remaining useful life of five years. During 2015 Beta had income of $40,000 and paid dividends of $10,000. Alpha uses the equity method in accounting for its ownership of Beta. On December 31, 2016, the trial balances of the companies are as follows:

	Alpha Corporation	Beta Corporation
Income statement
Sales	200,000	120,000
Cost of goods sold	(99,800)	(61,000)
Depreciation expense	(25,000)	(17,400)
Interest expense	(6,000)	(14,000)
Income from subsidary	16,620
Consolidated net income	85,820	27,600
Statement of retained earnings
Beginning balance	228,560	50,000
Net income	85,820	27,600
Less dividends declared	(40,000)	(10,000)
Ending balance	274,380	67,600
Balance sheet
Cash & accounts receivable	81,400	39,200
Inventory	60,000	55,000
Investment in Beta	124,370
Land	40,000	30,000
Buildings & equipment	504,000	362,000
Accumulated depreciation	(168,000)	(77,400)
Total assets	641,770	408,800
Accounts payable	86,190	41,200
Bonds payable	80,000	200,000
Bond premium	1,200
Common stock	200,000	100,000
Retained earnings	274,380	67,600
Total liabilities & equity	641,770	408,800

Beta sold inventory costing $45,000 to Alpha for $75,000 in 2015. Alpha held $9,000 in inventory at the end of 2015. Beta sold inventory costing $77,000 to Alpha in 2016 for $140,000 Alpha held $10,000 in inventory at the end of 2016.

On 1/1/2015 Alpha sold equipment with a book value of $10,000 to Beta for $14,000. The equipment originally cost Alpha $18,000. The equipment has a remaining life of 5 years at 1/1/2015.

Required -

1. Prepare an allocation of acquisition value at the time of acquisition to determine any excess value.

2. Record the equity entries made by Alpha for 2015 and 2016.

3. Prepare the analysis and entries required for the worksheet in 2015 and 2016.

Reference no: EM132831033

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