Differential Assigned to Patents
Power Corporation purchased 100 percent of the common stock of Snow Corporation on January 1, 20X2, by issuing 45,000 shares of its $6 par value common stock. The market price of Power’s shares at the date of issue was $24. Snow reported net assets with a book value of $980,000 on that date. The amount paid in excess of the book value of Snow’s net assets was attributed to the increased value of patents held by Snow with a remaining useful life of eight years. Snow reported net income of $56,000 and paid dividends of $20,000 in 20X2 and reported a net loss of $44,000 and paid dividends of $10,000 in 20X3.
Required
Assuming that Power Corporation uses the equity-method in accounting for its investment in Snow Corporation, prepare all journal entries for Power for 20X2 and 20X3.
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