Question

Playtown Corporation purchased 75 percent of Sandbox Corporation common stock and 40 percent of its preferred stock on January 1, 20X6, for $270,000 and $80,000, respectively. At the time of purchase, the fair value of the common shares of Sandbox held by the noncontrolling interest was $90,000. Sandbox's balance sheet contained the following balances:

Preferred Stock ($10 par value) $200,000
Common Stock ($5 par value) 150,000
Retained Earnings 210,000
Total Stockholders' Equity $560,000

Required
Give the eliminating entries needed to prepare a consolidated balance sheet immediately after Clayton purchased the Topple shares.

Answer 1

Elimination Journal.

Retained Earnings $210,000 (debit)

Common Stock $ 150,000 (debit)

Investment in Sandbox Corporation $270,000 (credit)

Non-Controlling Interest $90,000 (credit)

Step-by-step explanation:

When dealing with consolidation of Financial Statements, the Equity and Retained Earning in the Subsidiary has to be eliminated from the records whilst the Investment in Subsidiary and the Non-Controlling Interest in Subsidiary are recognized.

Elimination of the common items in consolidation is done by the use of Pro-forma Journals.

Goodwill or Gain on Bargain Purchase are also recognized on the date of acquisition of subsidiary.

Goodwill is the excess of Purchase Price and Non-Controlling interest over the Net Assets Acquired.While Gain on Bargain Purchase is the excess of Net Assets Acquired over Purchase Price and Non-Controlling interest.

Elimination Journal.

Retained Earnings $210,000 (debit)

Common Stock $ 150,000 (debit)

Investment in Sandbox Corporation $270,000 (credit)

Non-Controlling Interest $90,000 (credit)