Polar acquired Snow on January 1, 2019 at a price $300,000 in excess of book value. Of that excess, $200,000 was allocated to an unrecorded patent with a 10-year life, with the remainder to goodwill. Polar uses the equity method to account for its investment in its subsidiary. In 2020, Snow sold to Polar land having a book value of $90,000 for a total price of $145,000. Polar still owns the land as of 12/31/21.
Financial statements of the two companies for the year ended December 31, 2021 are presented below.
Polar Snow
Sales revenue $2,500,000 $525,000
Cost of goods sold (1,750,000) (345,000)
Gross profit 750,000 180,000
Operating expenses (475,000) (102,500)
Income (loss) from Snow 57,500
Net Income $ 332,500 $ 77,500
Retained Earnings, 1/1/21 $ 840,700 $245,650
Net income 332,500 77,500
Dividends ( 52,900) (8,850)
Retained Earnings, 12/31/21 $1,120,300 $314,300
Cash and receivables $ 320,100 $178,200
Inventory 461,700 278,600
Equity investment in Snow 625,400
Property, plant & equipment (Net)1,496,500 321,700
Total Assets $2,903,700 $778,500
Accounts payable $ 182,400 $ 55,900
Accrued liabilities 205,300 70,200
Notes payable 810,000 212,000
Common stock 354,200 45,000
Additional paid-in capital 231,500 81,100
Retained Earnings, 12/31/2 11,120,300 314,300
Total Liabilities and Equities $2,903,700 $778,500
Required:
a. Prepare a schedule showing the computation of Income (loss) from subsidiary on Polar's pre-consolidation books for 2021.
b. Calculate the Equity Investment account on Polar's consolidation balance sheet at December 31, 2020.
c. Prepare the consolidation worksheet entries for 2021 in journal format.