Major Corporation acquired 90 percent of Lancaster Companys voting common stock on January 1, 20X1, for $486,000.

Question:

Major Corporation acquired 90 percent of Lancaster Company’s voting common stock on January 1, 20X1, for $486,000. At the time of the combination, Lancaster reported common stock outstanding of $120,000 and retained earnings of $380,000, and the fair value of the noncontrolling interest was $54,000. The book value of Lancaster’s net assets approximated market value except for patents that had a market value of $40,000 more than their book value. The patents had a remaining economic life of five years at the date of the business combination. Lancaster reported net income of $60,000 and paid dividends of $20,000 during 20X1.

Required

a. What balance did Major report as its investment in Lancaster at December 31, 20X1, assuming Major uses the equity method in accounting for its investment?

b. Give the elimination entry or entries needed to prepare consolidated financial statements at December 31, 20X1.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...