Question

Prince Corporation acquired 100 percent of Sword Company on January 1, 20X7, for $187,000. The trial balances for the two companies on December 31, 20X7, included the following amounts:

	Prince Corporation									Sword Company
Item	Debit				Credit					Debit				Credit
Cash		$	83,000								$	34,000
Accounts Receivable			53,000									58,000
Inventory			180,000									119,000
Land			81,000									29,000
Buildings and Equipment			496,000									155,000
Investment in Sword Company			240,000
Cost of Goods Sold			496,000									251,000
Depreciation Expense			23,000									13,000
Other Expenses			64,000									64,000
Dividends Declared			51,000									25,000
Accumulated Depreciation						$	138,000								$	65,000
Accounts Payable							54,000									23,000
Mortgages Payable							189,000									122,000
Common Stock							292,000									41,000
Retained Earnings							329,000									88,000
Sales							687,000									409,000
Income from Sword Company							78,000
		$	1,767,000			$	1,767,000				$	748,000			$	748,000

Additional Information

1. On January 1, 20X7, Sword reported net assets with a book value of $129,000. A total of $25,000 of the acquisition price is applied to goodwill, which was not impaired in 20X7.
2. Sword’s depreciable assets had an estimated economic life of 11 years on the date of combination. The difference between fair value and book value of tangible assets is related entirely to buildings and equipment.
3. Prince used the equity-method in accounting for its investment in Sword.
4. Detailed analysis of receivables and payables showed that Sword owed Prince $18,000 on December 31, 20X7.

Prepare all journal entries recorded by Prince with regard to its investment in Sword during 20X7.

Answer 1

Computation of fair value adjustment in building and equipment: Particulars Amount(S) Acquisition price (A) Net book value on acquisition (B)129,000 Goodwill (C) 187,000 25,000 Fair value adjustment in building 33,000 and equipments [D-(A-B Prepare journal entries in the books of holding company for the year 20X7 Particulars Debit Credit(S) Investment in subsidiary company 187,000 Cash 187,000 To record investment made in subsidiary company) Investment in subsidiary company Income from subsidiary company (To record income generated from 78,000 78,000 subsidiary comann 25,000 Cash 25,000 Investment in subsidiary company To record dividend declared by subsidiary compary)

Goodwill 25,000 33,000 78,000 Building and equipment Income from subsidiary compan common stock 41.000 Retained earnings Accounts payable Investment in subsidiary company 88,000 18,000 240,000 25,000 Dividend declareod Accounts receivable 18,000 (To record elimination of assets and liabilities of susidiary company)