Purple Corporation owns 80 percent of Corn Corporation\'s common stock. It purch
ID: 2486727 • Letter: P
Question
Purple Corporation owns 80 percent of Corn Corporation's common stock. It purchased the shares on January 1, 20X1, for $560,000. At the date of acquisition, the fair value of the noncontrolling interest was $140,000, and Corn reported common stock outstanding of $360,000 and retained earnings of $180,000. The differential is assigned to a trademark with a life of five years. Each year since acquisition, Corn has reported income from operations of $68,000 and paid dividends of $25,000.
Corn purchased 70 percent ownership of Bark Company on January 1, 20X3, for $434,000. At that date, the fair value of the noncontrolling interest was $186,000, and Bark reported common stock outstanding of $240,000 and retained earnings of $290,000. In 20X3, Bark reported net income of $50,000 and paid dividends of $28,000. The differential is assigned to buildings and equipment with an economic life of 10 years at the date of acquisition.
-Prepare the journal entries recorded by Corn for its investment in Bark during 20X3.
a. Record the entry to amortize the differential related to buildings and equipment.
b. Record the equity-method income.
Record the entry to amortize the differential related to trademark.
c. Record the basic consolidation entry for the investment in Bark Company.
Record the amortized excess value reclassification entry for the investment in Bark Company.
Record the excess value (differential) reclassification entry for the investment in Bark Company.
Record the basic consolidation entry for the investment in Corn Company.
Record the amortized excess value reclassification entry for the investment in Corn Company.
Record the excess value (differential) reclassification entry for the investment in Corn Company.
Explanation / Answer
Answer:
a. Journal entries recorded by Corn Corporation on its investment in Bark Company:
(1) Investment in Bark Company Stock 434,000
Cash 434,000
Record purchase of Bark Company stock.
(2) Investment in Bark Company Stock 35,000
Income from Bark Company 35,000
Record equity-method income:
$50,000 x .70
(3) Cash 19,600
Investment in Bark Company Stock 19,600
Record dividends from Bark Company:
$28,000 x .70
(4) Income from Bark Company 5,000
Investment in Bark Company Stock 5,000
Amortize differential related to
buildings and equipment:
$50,000 / 10 years
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.