Chapter 5 Assignment

Large Ltd. purchased 80% of Small Company on January 1, Year 6, for $760,000, when the statement of financial position for Small showed common shares of $550,000 and retained earnings of $250,000. On that date, the inventory of Small was undervalued by $70,000, and a patent with an estimated remaining life of five years was overvalued by $88,000. Small reported the following subsequent to January 1, Year 6: Profit (Loss) Dividends Year 6 $140,000 $40,000 Year 7 (50,000) 25,000 Year 8 105,000 55,000 A test for goodwill impairment on December 31, Year 8, indicated a loss of $20,800 should be reported for Year 8 on the consolidated income statement. Large uses the cost method to account for its investment in Small and reported the following for Year 8 for its separate-entity statement of changes in equity: Retained earnings, beginning $ 650,000 Profit 350,000 Dividends (55,000) Retained earnings, end $ 945.000 Required: (a) Prepare the cost method journal entries of Large for each year. (Omit $ sign in your response.) Year 6 General Journal Debit Credit (Click to select) (Click to select) 6 To record the purchase of 80% of Small Company {Click to select) 4 (Click to select) 3 To record dividend received from Small Company Year 7 General Journal Debit Credit (Click to select) 3 0 (Click to select) To record dividend received from Small Company Year 8 General Journal Debit Credit (Click to select) 3 (Click to select) To record dividend received from Small Company 0 (b) Compute the following on the consolidated financial statements for the year ended December 31, Year 8: (Omit $ sign in your response.) (i) Goodwill Goodwill $ (ii) Non-controlling interest on the statement of financial position Non-controlling interest 35 (iii) Retained earnings, beginning ofyear Retained earnings, beginning of year $ (iv) Profit attributable to Large's shareholders Profit attributable to Large's shareholders $ (v) Profit attributable to non-controlling interest Profit attributable to non-controlling interest 35 (c) Now assume that Large is a private entity, uses ASPE, and chooses to use the equity method to report its investment in Small. (i) Prepare Large's journal entries for each year related to its investment in Small. (Omit $ sign in your response.) Year 6 General Journal Debit Credit (Click to select) 3 (Click to select) 3 To record the purchase of 80% of Small Company (Click to select) 3 (Click to select) 3 To record 80% of Small Company year 6 net income (Click to select) 3 (Click to select) 3 To record 80% of the dividend received from Small Company (Click to select) 3 (Click to select) 3 To record 80% of acquisition differential amortization and impairment of year 6 I Year7 General Journal Debit Credit (Click to select) 3 (Click to select) H o H m r: o H n. 00 O W o H. U) E D! ,_. ._. 4D 4) o 3 Pa DJ :1 k;