Question
Harper acquires 40 percent of the outstanding voting stock of Kinman Company on January 1, 2014, for $251,800 in cash. The book value of Kinmans
Harper acquires 40 percent of the outstanding voting stock of Kinman Company on January 1, 2014, for $251,800 in cash. The book value of Kinmans net assets on that date was $450,000, although one of the companys buildings, with a $62,400 carrying amount, was actually worth $108,900. This building had a 10-year remaining life. Kinman owned a royalty agreement with a 20-year remaining life that was undervalued by $133,000. |
Kinman sold inventory with an original cost of $58,800 to Harper during 2014 at a price of $84,000. Harper still held $24,300 (transfer price) of this amount in inventory as of December 31, 2014. These goods are to be sold to outside parties during 2015. |
Kinman reported a $55,400 net loss and a $29,800 other comprehensive loss for 2014, The company still manages to declare a $5,000 cash dividend during the year. |
During 2015, Kinman reported a $51,000 net income and declared cash dividend of $7,000. It made additional inventory sales of $70,000 to Harper during the period. The original cost of the merchandise was $43,750. All but 30 percent of this inventory had been resold to outside parties by the end of the 2015 fiscal year. |
Prepare all journal entries for Harper for 2014 and 2015 in connection with this investment. Assume that the equity method is applied. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.) |
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Record the initial investment.
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2
Record the dividend declaration.
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3
Record the receipt of dividend.
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4
Record the accrual of income and OCI from equity investee, 40% of reported balances.
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5
Record the amortization relating to acquisition of Kinman.
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6
Record the defer unrealized gross profit on intra-entity sale.
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7
Record the dividend declaration.
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8
Record the receipt of dividend.
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9
Record the 40% accrual of income as earned by equity investee.
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10
Record the amortization relating to acquisition of Kinman.
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11
Record the recognized income deferred from 2014.
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12
Record the deferred unrealized gross profit on intra-entity sale.
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