Question
Mighty Company purchased a 60 percent interest in Lowly Company on January 1, 2020, for $510,900 in cash. Lowly's book value at that date was
Mighty Company purchased a 60 percent interest in Lowly Company on January 1, 2020, for $510,900 in cash. Lowly's book value at that date was reported as $692,500, and the fair value of the noncontrolling interest was assessed at $340,600. Any excess acquisition-date fair value over Lowly's book value is assigned to trademarks to be amortized over 20 years. Subsequently, on January 1, 2021, Lowly acquired a 20 percent interest in Mighty. The price of $344,000 was equivalent to 20 percent of Mighty's book and fair value.
Neither company has paid dividends since these acquisitions occurred. On January 1, 2021, Lowly's book value was $984,500, a figure that rises to $1,048,500 (common stock of $300,000 and retained earnings of $748,500) by year-end. Mighty's book value was $1.72 million at the beginning of 2021 and $1.82 million (common stock of $1 million and retained earnings of $820,000) at December 31, 2021. No intra-entity transactions have occurred, and no additional stock has been sold. Each company applies the initial value method in accounting for the individual investments.
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1
Prepare entry *C to convert parent company figures to equity method.
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2
Prepare entry S1 to eliminate stockholders' equity accounts of subsidiary.
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3
Prepare Entry S2 to reclassify the cost of the parent shares as treasury stock.
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4
Prepare entry A to recognize allocations attributed to specific accounts at acquisition date for 2021.
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5
Prepare Entry E to record trademarks amortization expense for 2021.
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