Problem

Amortization of DifferentialBall Corporation purchased 30 percent of Krown Company’s commo...

Amortization of Differential

Ball Corporation purchased 30 percent of Krown Company’s common stock on January 1, 20X5, by issuing preferred stock with a par value of $50,000 and a market price of $120,000. The following amounts relate to Krown’s balance sheet items at that date:

 

Book Value

Fair Value

Cash and Receivables

$ 200,000

$200,000

Buildings and Equipment

400,000

360,000

Less: Accumulated Depreciation

(100,000)

 

Total Assets

$ 500,000

 

Accounts Payable

$ 50,000

50,000

Bonds Payable

200,000

200,000

Common Stock

100,000

 

Retained Earnings

150,000

 

Total Liabilities and Equities

$ 500,000

 

Krown purchased buildings and equipment on January 1, 20X0, with an expected economic life of 20 years. No change in overall expected economic life occurred as a result of the acquisition of Ball’s stock. The amount paid in excess of the fair value of Krown’s reported net assets is attributed to unrecorded copyrights with a remaining useful life of eight years. During 20X5, Krown reported net income of $40,000 and paid dividends of $10,000.

Required

Give all journal entries to be recorded on Ball Corporation’s books during 20X5, assuming it uses the equity method in accounting for its ownership of Krown Company.

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