Question

Prince Corporation acquired 100 percent of Sword Company on January 1, 20X7, for $199,000. 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		$	89,000								$	30,000
Accounts Receivable			59,000									64,000
Inventory			178,000									100,000
Land			87,000									25,000
Buildings and Equipment			493,000									152,000
Investment in Sword Company			265,000
Cost of Goods Sold			493,000									250,000
Depreciation Expense			23,000									13,000
Other Expenses			65,000									65,000
Dividends Declared			64,000									23,000
Accumulated Depreciation						$	142,000								$	65,000
Accounts Payable							60,000									28,000
Mortgages Payable							189,000									66,000
Common Stock							287,000									44,000
Retained Earnings							354,000									99,000
Sales							695,000									420,000
Income from Sword Company							89,000
		$	1,816,000			$	1,816,000				$	722,000			$	722,000

Additional Information

1. On January 1, 20X7, Sword reported net assets with a book value of $143,000. A total of $23,000 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 $23,000 on December 31, 20X7.

Required:
a. Prepare all journal entries recorded by Prince with regard to its investment in Sword during 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
b. Prepare all consolidating entries needed to prepare a full set of consolidated financial statements for 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

c. Prepare a three-part consolidation worksheet as of December 31, 20X7. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)

Answer 1

Part A

No.	Event	General journal	Debit	Credit
A	1	Common stock	44000
		Retained earnings	99000
		Income from Sword Company (89000+3000)	92000
		Dividends declared		23000
		Investment in Sword Company (balancing figure)		212000
		(To record basic consolidation entry)
B	2	Depreciation expense	3000
		Income from Sword Company		3000
		(To record amortized excess value reclassification entry)
C	3	Buildings and equipment	33000
		Goodwill	23000
		Accumulated depreciation		3000
		Investment in Sword Company (balancing figure)		53000
		(To record the excess value (differential) reclassification entry)
D	4	Accounts payable	23000
		Accounts receivable		23000
		(To record entry to eliminate the intercompany accounts)
E	5	Accumulated depreciation (65000-(4*3000))	53000
		Buildings and equipment		53000
		(To record the optional accumulated depreciation consolidation entry)

Fair value = 199000

Book value = 143000

Excess value = 56000

Assigned to goodwill = 23000

Excess assigned to building and equipment = 56000-23000 = 33000

Amortization of excess assigned to building and equipment = 33000/11 = $3000

Answer 2

Where from the $3,000 came there in the 1st Entry?