Purple Corporation owns 80 percent of Corn Corporation\'s common stock. It purch
ID: 2602311 • Letter: P
Question
Purple Corporation owns 80 percent of Corn Corporation's common stock. It purchased the shares on January 1, 20X1, for $520,000. At the date of acquisition, the fair value of the noncontrolling interest was $130,000, and Corn reported common stock outstanding of $400,000 and retained earnings of $200,000. The differential is assigned to a trademark with a life of five years. Each year since acquisition, Corn has reported income from operations of $60,000 and paid dividends of $25,000.
Corn purchased 70 percent ownership of Bark Company on January 1, 20X3, for $406,000. At that date, the fair value of the noncontrolling interest was $174,000, and Bark reported common stock outstanding of $250,000 and retained earnings of $300,000. In 20X3, Bark reported net income of $30,000 and paid dividends of $20,000. 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
record the purchase of bark company stock
record the dividends from bark company
record the equity-method income
record the entry to amortize the differential related to buildings and equipment
Prepare the journal entries recorded by Purple for its investment in Corn during 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
record the dividends from corn corporation
record the equity method income
record the entry to amortize the differential related to the trademark
Prepare the consolidation entries related to Corn’s investment in Bark and Purple’s investment in Corn needed to prepare consolidated financial statements for Purple and its subsidiaries at December 31, 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Purple Corporation owns 80 percent of Corn Corporation's common stock. It purchased the shares on January 1, 20X1, for $520,000. At the date of acquisition, the fair value of the noncontrolling interest was $130,000, and Corn reported common stock outstanding of $400,000 and retained earnings of $200,000. The differential is assigned to a trademark with a life of five years. Each year since acquisition, Corn has reported income from operations of $60,000 and paid dividends of $25,000.
Explanation / Answer
Purple Corporation $ 20X1 01-Jan a. Entries in Corn's books for acquiring 70% 20X3 ownership of Bank 01-Jan Investment in Bank 385000 Differential due to asset acquired 21000 Bank 406000 (purchase of 70% of Bank Corporation's common stock having a value of net assets of $550000) Payment of dividends: Bank 14000 Investment in Bank 14000 (Dividends from Bank on controlling interest of 70%) Equity method income: Investment in Bank 30000 Investment Revenue 30000 (Recording the increased value of Corn's investment in Bank) Entry to amortize differential: Investment Revenue 2100 Differential due to asset acquired 2100 Note: No interest rate given b. Journal entries by Purple for its investment in Corn Investment in Corn 480000 Differential due to Trtademark 40000 Bank 520000 (purchase of 80% of Corn Corporation's common stock having a value of net assets of $600000) Payment of dividends: Bank 20000 investment in Corn 20000 (Dividends from Corn on controlling interest of 80%) Equity method income: investment in Corn 48000 Investment Revenue 48000 (Recording the increased value of Purple's investment in Corn) Entry to amortize differential: Investment Revenue 8000 Differential due to asset acquired 8000 Note: No interest rate given c. No entry required
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