Adjusting entries prior to pooling. On December 31, 20X5, Lumina Company has the following balance sheet:
|
Assets |
Liabilities and Equity |
||
|
Cash |
$100,000 |
Liabilities |
$150,000 |
|
Receivables |
150,000 |
Common stock ($5 par) |
50,000 |
|
Inventory |
200,000 |
Paid in capital in excess of par |
450,000 |
|
Land |
50,000 |
Retained earnings |
210,000 |
|
Building (net) |
280,000 |
||
|
Equipment (net) |
80,000 |
||
|
Total assets |
$860,000 |
Total liabilities and equity |
$860,000 |
Zeeco Company will issue its $10 par value shares on a 1 for 1 basis to accomplish a pooling of interests. There are, however, some adjustments that may need to be acknowledged before the pooling can be recorded. The inventory of Lumina Company is recorded on a LIFO basis. Zeeco uses the FIFO method and will also convert Lumina’s inventory to FIFO. This will increase the inventory cost to $250,000.
The building is obsolete and has an appraised value of only $100,000. The recorded liabilities do not include accrued interest of $5,000.
1. Prepare the adjusting entries needed on the books of Lumina Company prior to the pooling of interests.
2. Prepare the entry that Zeeco Company will make to record the pooling of interests. Support the entry with an equity transfer diagram.