Saxton Corporation purchased 25 percent of Taylor Company's voting stock on January 1, 2013, for $18...
Saxton Corporation purchased 25 percent of Taylor Company's voting stock on January 1, 2013, for $18 million in cash. At the date of acquisition, Taylor reported its total assets at $360 million and its total liabilities at $336 million. Investigation revealed that Taylor's plant and equipment (15-year life) was overvalued by $10.8 million and it had an unreported customer database (2-year life) valued at $3 million. Taylor declares and pays $600,000 in dividends and reports net income of $1,500,000 in 2016.
Required
Prepare the necessary journal entries on Saxton's books to report
the above information for 2016 assuming Saxton uses the equity
method to report its investment.
Homework Answers
ANSWER:
Required: Journal Entries
| Date | Particulars | Debit | Credit |
| Dec, 2019 | Equity investment in Taylor | 375,000 | |
| To Taylor's net income (1,500,000 * 25%) | 375,000 | ||
| (To record net income of Taylor 25% booked in investment account) | |||
| Dec, 2019 | Cash (600,000 * 25%) | 150,000 | |
| To Equity investment in Taylor | 150,000 | ||
| (To record dividend received adjusted to investment account) | |||
| Dec 2019 | Depreciation- Plant and Equipment (10,800,000 / 15) | 720,000 | |
| To Equity investment in Taylor | 720,000 | ||
| (To record overvalued plant and equipment adjusted to investment account) |
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liabilities on January 1, 2013, for $60 million in cash. At the
date of acquisition, Taylor's reported assets consist of current
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reports current liabilities of $80 million and long-term debt of
$200 million. Investigation reveals that Taylor's plant and
equipment is overvalued by $9 million and it has an unreported
customer database valued at $2.5 million.
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