“Delta Company purchased all of the voting stock of Alpha Company on January 1,19×2, for 400,000. Delta Company uses the cost method of accounting for

“Delta Company purchased all of the voting stock of Alpha Company on January 1,19×2, for 400,000. Delta Company uses the cost method of accounting for its investment in Alpha Company. At the date of Acquisition, the book values of all Alpha Company assets and liabilities were exactly equal to their fair market values, with the exception of Plant Assets, which were undervalued 40,000. Any goodwill is to be amortized over the maximum period permissible. All depreciable assets on both sets of records are being depreciated uniformly over a 20-year period beginning on January 1, 19×2, with no estimated salvage value. During 19×2 Alpha Company had a loss of 20,000 and paid no dividends. During 19×2 and 19×3, Alpha Company sold merchandise to Delta Company at a markup of 25% of cost. The amounts charged Delta Company by Alpha Company were 60,000 and 80,000 respectively. At the end of 19×2, Delta Company’s ending inventory, all sold in 19×3, included goods valued at 25,000 which were acquired from Alpha Company, and at the end of 19×3 the corresponding figure was 20,000. Delta Company acquired $100,000, 8%, Alpha Company bonds on January 1, 19×2, shortly after the stock was purchased. At that time the market value of the bonds was equal to par. Interest is paid annually on December 31. Complete the accompanying consolidating worksheet, using trial balances for 19×3. Include notes to explain the entries. Delta Company Consolidating Work Sheet December 31, 19×3 Account Title Delta Company Alpha Company Eliminating Entries Consolidated Trial Balance Credits Debits Inventory 200,000 50,000 Other Current Assets 400,000 200,000 Plant Assets (Net) 1,000,000 400,000 Investment in Alpha Company 400,000 0 Investment in Alpha Bonds 100,000 0 Cost of Goods Sold 4,000,000 800,000 Depreciation Expense 200,000 50,000 Interest Expense 0 40,000 Other Expense 600,000 80,000 Current Liabilities -300,000 0 Bonds Payable 0 -500,000 Sales -5,500,000 -980,000 Interest Income -8,000 0 Paid-in Capital-Delta -100,000 0 Paid-in Capital-Alpha 0 -40,000 Retained Earnings-Delta -992,000 0 Retained Earnings-Alpha 0 -100,000 ” “Current Liabilities -300,000 0 Bonds Payable 0 -500,000 Sales -5,500,000 -980,000 Interest Income -8,000 0 Paid-in Capital-Delta -100,000 0 Paid-in Capital-Alpha 0 -40,000 Retained Earnings-Delta -992,000 0 Retained Earnings-Alpha 0 -100,000 “

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