Journal entries and consolidation work sheet entries for various methods of accounting for intercorporate investments. Rockwell Corpt)ration acquired, as long-term investments, shares of conunon stock of Company R, Company S, and

Company T on January 2. These are the only long-term investments in securities that Rockwell Corporation holds. Data relating to the acquisitions follow. Amortize any goodwill arising from the acquisitions over 10 years.

a. Give the journal entries made to acquire the shares of Company R and to account for the investment during the year, using the market value method.

b. Give the journal entries made to acquire the shares of Company S and to account for the investment during the year, using the equity method.

c. Give the journal entries made to acquire the shares of Company T and to account for the investment during the year, using the equity method. (Parts d through g require coverage of Appendix 11.1.)

d. Give the consolidation work sheet entry to eliminate the Investment in Stock of Company T account at the end of the year, assuming that Rockwell uses the eq uity method and that the work sheet starts with preclosing trial balance amounts. Company T had $2.400.000 in its Common Stock account throughout the year and a zero balance in Additional Paid-in Capital.

e. Repeat part

d, but assume that the work sheet starts with postclosing trial balance amounts

f. Assume that Rockwell Corporation had acquired the shares of Company T for $6,600,000 instead of 56,000,000. Give the journal entries made during the year to acquire the shares of Company T and to account for the investment using the equity method. Rockwell Corporation treats any excess of acquisition cost over book value as goodwill and amortizes it over 10 years. g. Refer to part

f. Give the consolidation work sheet entry to eliminate the Invest- ment in Stock of Company T account. assuming the work sheet uses preclosing trial balance data.

Transcribed Image Text:

EXHIBIT 11.18 Accounting for Secunties Available for Sole (SAS) and Trading Secures [15) The Events Trading Secunties Balance Sheet Cash (B8) 100 100 (2) (4) 97 (68) Start with $100 of Cash and $100 of Retained Earnings. (1) Buy Marketable Secunties for $100. (EB) 97 Securities Available for Sale-Balance Sheel Cash (B8) 100 100 (1) (4) 97 (EB) 97 (2) At end of Year 1, securities have market value of $110. Marketable Securities Retained Earnings (1) 100 100 188 (31 At end of Year 2, securities have market value of $92. Marketable Securities (1) 100 Retained Eamings 100 (BB) www 100 closed here 100 (4) (4) During Year 3, sell securities for $97. (40) 3 (EB) 0 from Income Statement) (5) At time of Year 3 sale or at end of Year 3, get rid of X/A balance for SAS only. 97 (EB) Marketable Securities X/A Owners' Equity X/A (2) 10 (EB) End with $97 of Cash and $97 of Retained Earnings. (2) 10 10 12) 10 10 18 131 13c) 18 18.431 131 18 92 92 8 92 (4) 5 (4c) (EB) 9 97 (EB) (5) (EB) 8 151 0 (E8 Income Statements for Trading Securities Company Year 1 Year 2 Year $ 10 (16) 3 B Total (2) closed from here to balance sheet. (3) closed from here to balance sheet. (4) closed from here to balance shoot. Total Loss Realized over Three Years is $3. TS report gains and losses in all periods. SAS report a less recognized in 3rd period.- Income Statements for Securities Available for Sale Company Year 1 .......... $0 Year 2 ........... Year 3 Total 0 Notes. BB means Beginning Balance. EB means Ending Balance. Means halance at end of Year 1 Maans balance at end of Year 2. TS means Trading Securities. SAS means Securities Available for Sale.. X/A Means an Account That Can Be Either Contra or Adjunct.