Consolidation Following Three Years of Ownership
Knox Corporation purchased 60 percent of Conway Company ownership on January 1, 20X7, for $277,500. Conway reported the following net income and dividend payments:
Year | Net Income | Dividends Paid |
20X7 | $45,000 | $25,000 |
20X8 | 55,000 | 35,000 |
20X9 | 30,000 | 10,000 |
On January 1, 20X7, Conway had $250,000 of $5 par value common stock outstanding and retained earnings of $150,000, and the fair value of the noncontrolling interest was $185,000. Conway held land with a book value of $22,500 and a market value of $30,000 and equipment with a book value of $320,000 and a market value of $360,000 at the date of combination. The remainder of the differential at acquisition was attributable to an increase in the value of patents, which had a remaining useful life of 10 years. All depreciable assets held by Conway at the date of acquisition had a remaining economic life of eight years.
Required
a. Compute the increase in the fair value of patents held by Conway.
b. Prepare the eliminating entries needed at January 1, 20X7, to prepare a consolidated balance sheet.
c. Compute the balance reported by Knox as its investment in Conway at January 1, 20X9.
d. Prepare the journal entries recorded by Knox with regard to its investment in Conway during 20X9.
e. Prepare the eliminating entries needed at December 31, 20X9, to prepare a three-part consolidation worksheet.
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