Consolidation Involving a Midyear Purchase

Famous Products Corporation acquired 90 percent ownership of Sanford Company on October 20, 20X2, through an exchange of voting shares. Famous Products issued 8,000 shares of its $10 par stock to acquire 27,000 shares of Sanford’s $5 par stock. The market value of shares issued by Famous Products was $247,500. At that date, the fair value of the noncontrolling interest was $27,500. Trial balances of the two companies on December 31, 20X2, are as follows:

Â	Famous Products Corporation		Sanford Company
Â	Debit	Credit	Debit	Credit
Cash	$ 85,000	Â	$ 50,000	Â
Accounts Receivable	100,000	Â	60,000	Â
Inventory	150,000	Â	100,000	Â
Buildings & Equipment	400,000	Â	340,000	Â
Investment in Sanford Stock	252,000	Â	Â	Â
Cost of Goods Sold	305,000	Â	145,000	Â
Depreciation Expense	25,000	Â	20,000	Â
Other Expense	14,000	Â	25,000	Â
Dividends Declared	40,000	Â	30,000	Â
Accumulated Depreciation	Â	$ 105,000	Â	$ 65,000
Accounts Payable	Â	40,000	Â	50,000
Taxes Payable	Â	70,000	Â	55,000
Bonds Payable	Â	250,000	Â	100,000
Common Stock	Â	200,000	Â	150,000
Additional Paid-In Capital	Â	167,500	Â	Â
Retained Earnings	Â	135,000	Â	100,000
Sales	Â	390,000	Â	250,000
Income from Sanford Co.	Â	13,500	Â	Â
Totals	$1,371,000	$1,371,000	$770,000	$770,000

For 20X2, before acquisition, Sanford reported sales of $205,000, cost of goods sold of $126,000, depreciation of $16,000, and other expenses of $18,000. Sanford paid dividends of $20,000 in April and $10,000 in November 20X2. Famous Products, which paid dividends of $40,000 in 20X2, uses the equity method in accounting for its investment in Sanford.

Required

a. Give all journal entries recorded by Famous Products during 20X2 that relate to its investment in Sanford.

b. Give the worksheet elimination entries needed on December 31, 20X2, to prepare consolidated financial statements.

c. Prepare a three-part consolidation worksheet as of December 31, 20X2.