Liquidating Dividend

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:

• Prepare the general journal entries for 2014 and 2015 to record the receipt of the cash dividends.
• Prepare all determinable workpaper entries that would be made in the preparation of 2014 consolidated statements workpaper.
• Prepare all determinable workpaper entries that would be made in the preparation of consolidated statements for 2015.
• How would the entry in part A change if the cost method was used to account for the investment?