Question
On January 1, 2020, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,600,000 in cash and
On January 1, 2020, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,600,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $910,000, retained earnings of $460,000, and a noncontrolling interest fair value of $400,000. Corgan attributed the excess of fair value over Smashing's book value to various covenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing.
During the next two years, Smashing reported the following:
| Net Income | Dividends Declared | Inventory Purchases from Corgan | |||||||
| 2020 | $ | 360,000 | $ | 56,000 | $ | 310,000 | |||
| 2021 | 340,000 | 66,000 | 330,00 | ||||||
Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2020 and 2021, 50 percent of the current year purchases remain in Smashing's inventory.
- Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2021.
- Prepare the worksheet adjustments for the December 31, 2021, consolidation of Corgan and Smashing.
Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2021.
Investment balance 12/31/21
Prepare the worksheet adjustments for the December 31, 2021, consolidation of Corgan and Smashing. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
| No | Transaction | Accounts | Debit | Credit |
|---|---|---|---|---|
| 1 | 1 | Investment in Smashing | ||
| Cost of goods sold | ||||
| 2 | 2 | Common stock - Smashing | ||
| Retained earnings - Smashing | ||||
| Investment in Smashing | ||||
| Noncontrolling interest | ||||
| 3 | 3 | Covenants | ||
| Investment in Smashing | ||||
| Noncontrolling interest | ||||
| 4 | 4 | Equity in earnings of Smashing | ||
| Investment in Smashing | ||||
| 5 | 5 | Investment in Smashing | ||
| Dividends declared | ||||
| 6 | 6 | Amortization expense | ||
| Covenants | ||||
| 7 | 7 | Sales | ||
| Cost of goods sold | ||||
| 8 | 8 | Cost of goods sold | ||
| Inventory |
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