On January 1, 2014, Pacelli Company acquired a 90% interest in Swartz Corporation for $720,000. On this

Question:

On January 1, 2014, Pacelli Company acquired a 90% interest in Swartz Corporation for $720,000. On this date, Swartz Corporation reported common stock of $500,000 and retained earnings of $200,000. Any difference between implied and book value interest acquired is attributable to the under- or overvaluation of land.

Other information pertaining to Swartz Corporation follows:

2014 Net income ............................$65,000

2014 Cash dividends ........................90,000

2015 Net income ..............................80,000

2015 Cash dividends .........................40,000

Pacelli Company uses the partial equity method to account for its investment in Swartz Corporation.

Required:

A. Prepare the general journal entries for 2014 and 2015 to record the receipt of the cash dividends.

B. Prepare all determinable work paper entries that would be made in the preparation of 2014 consolidated statements work paper.

C. Prepare all determinable work paper entries that would be made in the preparation of consolidated statements for 2015.

D. How would the entry in part A change if the cost method was used to account for the investment?

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