Question

Harper,  Inc. acquires 40 percent of the outstanding voting stock of Kinman Company on January 1, 2017, for $343,900 in cash. The book value of Kinman's net assets on that date was $730,000, although one of the company's buildings, with a $72,800 carrying amount, was actually worth $115,050. This building had a 10-year remaining life. Kinman owned a royalty agreement with a 20-year remaining life that was undervalued by $87,500.

Kinman sold inventory with an original cost of $86,100 to Harper during 2017 at a price of $123,000. Harper still held $20,250 (transfer price) of this amount in inventory as of December 31, 2017. These goods are to be sold to outside parties during 2018.

Kinman reported a $42,200 net loss and a $23,300 other comprehensive loss for 2017. The company still manages to declare and pay a $6,000 cash dividend during the year.

During 2018, Kinman reported a $44,200 net income and declared and paid a cash dividend of $8,000. It made additional inventory sales of $118,000 to Harper during the period. The original cost of the merchandise was $73,750. All but 30 percent of this inventory had been resold to outside parties by the end of the 2018 fiscal year.

Prepare all journal entries for Harper for 2017 and 2018 in connection with this investment. Assume that the equity method is applied.

Answer 1

Answoro 87.500 life ........ 4225 1690 * prepare all youmal entries for Hlavpor for 2017 & 2018 :=- Table 1: Building muilding Royalty agreement Excess amount ($115,000 -18.800) Hadso lo 20 Amortisertion 4375 401. acquisition 1750 I Total 3440 Table at inventory 2017 Remaining at year End 20,850 prefix_margar_3690|123,000 Lun£ained gross profit 401 acquisition - 4432 meaning Journal entrics & Date : General Journal -- Debatib) (xcit 12 od 01/2017 inucstment in Kuman co n $343; 900. To cach. $343,900 2018 35400 0:3 0.313 6015 11080 2430

$ 2400 $2400 During do $2000 $2400 12:1000 $3440 +3440 B2430 Dalla dolt Dividend receivable 70 incelmcat in kinman Googxuol I cash To Dividend recevable 3112007 equity in Kenman loss (44200 x 60!) $17680 otheti comprchensive loss (23,300X401) $9320 To investment in kinman.com 31/12/2011 equity in KINMA Tolmvestment in kinman 31/14117_ quirly in Kinmn incom To investiment in Kinman.com 2018 Dividend deceivable (8800840474 2200 To inuestment om kind .com cash # 2200 To Dividend receivable 31/12/2018 Amuestment in Kimman CO- $4680 To investment in Kuvena 31/12.1181 -Equity in KIAN COU $3440. To investment in KMAN | 21/12/18. investmeal in keaman.com $2430 To Equitte in kuuman income $4430 $3200 2200 $7680 $3440 $2430

31/12/18 $4422 Equity in KINNAN.COM To investmead in KINNAN $4432