Balance Sheet Eliminations (Effective Interest Method)

Balance Sheet Eliminations (Effective Interest Method)

Bath Corporation acquired 80 percent of Stang Brewing Company’s stock on January 1, 20X1, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 20 percent of Stang’s book value. On January 1, 20X1, Stang issued $300,000 par value, 8 percent, 10-year bonds to Sidney Malt Company for $360,000. Bath subsequently purchased $100,000 of the bonds from Sidney Malt for $102,000 on January 1, 20X3. Interest is paid semiannually on January 1 and July 1.

Summarized balance sheets for Bath and Stang as of December 31, 20X4, follow:

BATH CORPORATION Balance Sheet December 31, 20X4
Cash & Receivables	$122,500	Accounts Payable	$ 40,000
Inventory	200,000	Bonds Payable	400,000
Buildings & Equipment (net)	320,000	Common Stock	200,000
Investment in Stang Brewing:		Retained Earnings	309,627
Bonds	101,607
Stock	205,520
Total Assets	$949,627	Total Liabilities & Owners’ Equity	$949,627

STANG BREWING COMPANY Balance Sheet December 31, 20X4
Cash & Receivables	$124,000	Accounts Payable	$ 28,000
Inventory	150,000	Bonds Payable	300,000
Buildings & Equipment (net)	360,000	Bond Premium	39,739
		Common Stock	100,000
		Retained Earnings	166,261
Total Assets	$634,000	Total Liabilities & Owners’ Equity	$634,000

At December 31, 20X4, Stang holds $42,000 of inventory purchased from Bath, and Bath holds $26,000 of inventory purchased from Stang. Stang and Bath sell inventory to each other at cost plus markups of 30 percent and 40 percent, respectively. Assume total sales from Bath to Stang were $100,000 and from Stang to Bath were $50,000.

Required

a. Prepare all elimination entries needed on December 31, 20X4, to complete a consolidated balance sheet worksheet. Assume Stang earned $74,476 and paid $10,000 in dividends during the year.

b. Prepare a consolidated balance sheet worksheet.

c. Prepare a consolidated balance sheet in good form.

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