Question

On January 1, 2013 Master Corporation acquired 80% of Stanley Wood Products Company's outstanding shares by paying $150,000 in cash. On that date, the fair value of the noncontrolling interest was $37,500 and Stanley reported retained earnings of $42,000 and had $98,000 of common stock outstanding. Master has used the equity method in accounting for investment in Stanley. Trial balance data for the two companies on December 31, 2017 are as follows:

	Master			Stanley
	Debit	Credit		Debit	Credit
Cash & Receivables	$ 85,000	$?		$ 70,000	$?
Inventory	270,000			92,000
Land	82,000			82,000
Buildings & Equipment	296,000			87,000
Investment in Stanley	185,720
Cost of Goods Sold	117,000			42,000
Depreciation Expense	20,000			10,000
Inventory Losses	10,000			6,000
Dividends Declared	42,000			19,600
Accounts Payable		55,000			19,000
Notes Payable		212,920			103,600
Common Stock		294,000			98,000
Retained Earnings		308,000			88,000
Sales		208,000			100,000
Income from Subsidiary		29,800
	$ 1,107,720	$ 1,107,720		$ 408,600	$ 408,600

Additional Information

1. On the date of combination, the fair value of Stanley’s depreciable assets was $47,500 more than book value. The accumulated depreciation on these assets was $10,000 on the acquisition date. The differential assigned to depreciable assets should be written off over the following 10-year period.

2. There was $12,000 of intercorporate receivables and payables at the end of 2017.

Required:

a) Prepare all equity method journal entries that Master recorded during 2017 related to its investment in Stanley.

b) Prepare the consolidation entries

Answer 1

1	Equity Method Entries on Master Corp.'s Books:
No.	Account titles	Debit	Credit
a	Investment in Stanley Wood Co.	$      33,600
	Income from Stanley Wood Co.		$        33,600
	(100000-42000-10000-6000)*0.8
	To Record Master Corp.'s 80% share of Stanley Wood Co.'s 20X5 income
b	Cash	$      15,680
	Investment in Stanley Wood Co.		$        15,680
	19600*0.8
	To Record Master Corp.'s 80% share of Stanley Wood Co.'s 20X5 dividend
c	Income from Stanley Wood Co.	$        3,800
	Investment in Stanley Wood Co.		$          3,800
	To Record amortization excess of acquistion price
	4750*0.8
2
a	Common stock	$      98,000
	Retained earnings	$      88,000
	Income from Stanley Wood Co.	$      33,600
	NCI in NI of Stanley wood co	$        8,400
	Dividend		$        19,600
	Investment in Stanley Wood Co.		$      166,720
	NCI in NA of Stanley Wood Co		$        41,680
b	Depreciation expense	$        4,750
	Income from Stanley Wood Co.		$          3,800
	NCI in NA of Stanley Wood Co		$             950
c	Buiding and equipment	$      47,500
	Accumulated depreciation		$        23,750
	Investment in Stanley Wood Co.		$        19,000
	NCI in NA of Stanley Wood Co		$          4,750
d	Accounts payable	$      12,000
	Cash and receivables		$        12,000

Workings:
	NCI	Master	=	Common stock	R/E
Orignal book value	37,200	148800	=	98,000	88,000
add:net income	8,400	33600	=		42,000
less:dividends	-3,920	-15680	=		-19,600
ending book value	41,680	166,720		98,000	110,400
fair value	187500	Years	Amortization
Less:book value	-140000
excess	47500
attributable to
asset	47500	10	4750
goodwill	0