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.