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
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 | ||||
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