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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