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Assume that Johnson Company acquires a 75% interest in its The Nephew on January 1, 2016. On the date of acquisition, the fair value of the 75% controlling interest was $1,800,000 and the fair value of the 25% noncontrolling interest was $600,000. On January 1, 2016, the book value of net assets equaled $2,400,000 and the fair value of the identifiable net assets equaled the book value of identifiable net assets (i.e. there was no AAP or Goodwill). Johnson uses the equity method to account for its investment in the subsidiary.

On December 31, 2017, the The Nephew company issued $1,500,000 (face) 6 percent, five-year bonds to an unaffiliated company for $1,380,218 (i.e. the bonds had an effective yield of 8 percent). The bonds pay interest annually on December 31, and the bond discount is amortized using the straight-line method. This results in annual bond-payable discount amortization equal to $23,956 per year.

On December 31, 2019, Johnson paid $1,540,849 to purchase all of the outstanding The Nephew company bonds (i.e. the bonds had an effective yield of 5 percent). The bond premium is amortized using the straight-line method, which results in annual bond-investment premium amortization equal to $13,616 per year.

The Parent and the Subsidiary report the financial statements on the next sheet for the year ended December 31, 2020

1. Required:

Provide the consolidation entries and 2. Prepare a consolidation worksheet for the year ended December 31, 2018.

Johnson & His Nephew							Consolidated
			Consolidation Entries				Statements
	Johnson	His Nephew		Dr		Cr	Johnson & His Nephew
Income Statement
Sales	12,100,000	1,240,000					13,340,000
Cost of Goods Sold	(9,060,000)	(710,000)					(9,770,000)
Gross Profit	3,040,000	530,000					3,570,000
Income (loss) from Subsidiary	131,355	-					131,355
Operating & other expenses	(2,030,000)	(291,000)					(2,321,000)
Bond interest income	76,384						76,384
Bond interest expense		(113,956)					(113,956)
Consolidated Net Income	1,217,739	125,044					1,342,783
Income attributable to NCI							0
Income attributable to Controlling Int							1,342,783
Retained Earnings Statement
Beginning Retained Earnings	8,036,000	1,115,000					9,151,000
Net Income	1,217,739	125,044					1,342,783
Dividends Declared	(170,000)	(26,000)					(196,000)
Ending Retained Earnings	9,083,739	1,214,044					10,297,783
Balance Sheet
Cash	1,559,000	596,131					2,155,131
Accounts receivable	3,100,000	760,000					3,860,000
Inventories	3,105,000	520,000					3,625,000
Property, Plant & Equipment, net	9,700,000	4,450,000					14,150,000
Equity Investment	2,027,887						2,027,887
Investment in Bond (net)	1,527,233						1,527,233
Total Assets	21,019,120	6,326,131					27,345,251
Accounts Payable	1,650,000	620,000					2,270,000
Other current liabilities	1,700,000	700,000					2,400,000
Bond Payable (net)		1,452,087					1,452,087
Other long-term liabilites	2,080,000	750,000					2,830,000
Common Stock	1,020,000	540,000					1,560,000
APIC	5,485,381	1,050,000					6,535,381
Retained Earnings	9,083,739	1,214,044					10,297,783
Noncontrolling Interest							0
Total Liabilities and Equity	21,019,120	6,326,131		0		0	27,345,251

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