Pistol Corporation purchased 100 percent ownership of Scope Products on January 1, 20X6, for $64,000, at which time Scope Products reported retained earnings of $14,000 and capital stock outstanding of $27,000. The differential was attributable to patents
Pistol Corporation purchased 100 percent ownership of Scope Products on January 1, 20X6, for $64,000, at which time Scope Products reported retained earnings of $14,000 and capital stock outstanding of $27,000. The differential was attributable to patents with a life of four years. Income and dividends of Scope Products were
| Year | Net Income | Dividends | ||||
| 20X6 | $ | 20,000 | $ | 8,000 | ||
| 20X7 | 28,000 | 10,000 | ||||
| 20X8 | 36,000 | 10,000 | ||||
Required:
1. Prepare the equity method entries that Pistol should record to account for this investment in 20X6, 20X7, and 20X8. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Homework Answers
To find the differential value to record the amortization you take the initial investment - the reported retained earnings - the capital stock outstanding and divide the outcome by the lifespan of the patents.
(64000-14000-27000) / 4 = 5750
To find the balance of the investment account take the inital investment + the total of the net income - the total of the dividends received - (the yearly diff x the years recorded)
64000 + (20000 + 28000 + 36000) - (8000 + 10000 + 10000) - (5750 * 3) = 102750
To find the differential value to record the amortization you take the initial investment - the reported retained earnings - the capital stock outstanding and divide the outcome by the lifespan of the patents.
(64000-14000-27000) / 4 = 5750
To find the balance of the investment account take the inital investment + the total of the net income - the total of the dividends received - (the yearly diff x the years recorded)
64000 + (20000 + 28000 + 36000) - (8000 + 10000 + 10000) - (5750 * 3) = 102750
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Pistol Corporation purchased 100 percent ownership of Scope Products on January 1, 20X6, for $64,000, at which time Scope Products reported retained earnings of $14,000 and capital stock outstanding of $27,000. The differential was attributable to patents
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