On January 1, 2020, Pickering Company acquired all of Silverline Corporation's voting common stock for $800,000 in cash. Silverline's equity accounts at the time of acquisition were capital stock of $50,000 and retained earnings of $150,000. The $600,000 excess of acquisition cost over book value of Silverline was attributed entirely to goodwill. Silverline reported net income of $42,000 and $65,000 in 2020 and 2021, respectively, and declared no dividends. Pickering reports its investment using the complete equity method. There is no goodwill impairment in 2020, but goodwill is impaired by $40,000 in 2021. Information on intercompany transactions follows:
•On March 5, 2020, Silverline sold land to Pickering for $100,000; the land originally cost $85,000. Pickering continues to hold the land.
•During 2021, Pickering recorded intercompany merchandise sales of $350,000 to Silverline, reflecting a markup of 25 percent on cost. Silverline's beginning inventory included $25,000 of merchandise purchased from Pickering. Silverline's ending inventory included $11,250 of merchandise purchased from Pickering.
•On January 1, 2021, Silverline sold machinery to Pickering for $35,000 and recorded a gain of $4,000. The machinery is being depreciated over its remaining life of four years, straight-line.
•Pickering billed Silverline $25,000 for services during 2021. Costs incurred in supplying these services amounted to $19,000. On December 31, 2021, the unpaid portion of these intercompany services amounted to $2,000.
Required
a. Prepare a schedule to compute Pickering's equity in net income of Silverline for 2021.
b. Calculate the investment in Silverline balance reported by Pickering on December 31, 2021.
c. Prepare the working paper eliminations (C), (I), (E), (R) and (O) to consolidate the December 31, 2021 trial balances of Pickering and Silverline.

Question

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The Answer of On January 1, 2020, Pickering Company acquired all of Silverline Corporation's voting common stock for $800,000 in cash. Silverline's equity accounts at the time of acquisition were capital stock of $50,000 and retained earnings of $150,000. The $600,000 excess of acquisition cost over book value of Silverline was attributed entirely to goodwill. Silverline reported net income of $42,000 and $65,000 in 2020 and 2021, respectively, and declared no dividends. Pickering reports its investment using the complete equity method. There is no goodwill impairment in 2020, but goodwill is impaired by $40,000 in 2021. Information on intercompany transactions follows:
•On March 5, 2020, Silverline sold land to Pickering for $100,000; the land originally cost $85,000. Pickering continues to hold the land.
•During 2021, Pickering recorded intercompany merchandise sales of $350,000 to Silverline, reflecting a markup of 25 percent on cost. Silverline's beginning inventory included $25,000 of merchandise purchased from Pickering. Silverline's ending inventory included $11,250 of merchandise purchased from Pickering.
•On January 1, 2021, Silverline sold machinery to Pickering for $35,000 and recorded a gain of $4,000. The machinery is being depreciated over its remaining life of four years, straight-line.
•Pickering billed Silverline $25,000 for services during 2021. Costs incurred in supplying these services amounted to $19,000. On December 31, 2021, the unpaid portion of these intercompany services amounted to $2,000.
Required
a. Prepare a schedule to compute Pickering's equity in net income of Silverline for 2021.
b. Calculate the investment in Silverline balance reported by Pickering on December 31, 2021.
c. Prepare the working paper eliminations (C), (I), (E), (R) and (O) to consolidate the December 31, 2021 trial balances of Pickering and Silverline.

On January 1, 2020, Pickering Company Acquired All of Silverline