Question
Porter Company purchased 60 percent ownership of Temple Corporation on January 1, 20X1, at underlying book value. At that date, the fair value of the
Porter Company purchased 60 percent ownership of Temple Corporation on January 1, 20X1, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 40 percent of Temples book value. On January 1, 20X1, Porter sold $77,000 par value, 8 percent, five-year bonds directly to Temple for $79,000 and the market interest rate was 7 percent. The bonds pay interest annually on December 31. Porter uses the fully adjusted equity method in accounting for its ownership of Temple. On December 31, 20X2, the trial balances of the two companies are as follows: |
Note: Assume using straight-line amortization of bond discount or premium. |
Porter Company | Temple Corporation | |||||||||||
Item | Debit | Credit | Debit | Credit | ||||||||
Cash and Accounts Receivable | $ | 98,200 | $ | 42,000 | ||||||||
Inventory | 126,000 | 67,000 | ||||||||||
Buildings and Equipment | 507,000 | 319,000 | ||||||||||
Investment in Temple Corporation Stock | 92,400 | |||||||||||
Investment in Porter Company Bonds | 78,200 | |||||||||||
Cost of Goods Sold | 94,800 | 59,000 | ||||||||||
Depreciation Expense | 22,000 | 12,000 | ||||||||||
Interest Expense | 5,760 | 13,760 | ||||||||||
Dividends Declared | 31,000 | 9,000 | ||||||||||
Accumulated Depreciation | $ | 160,000 | $ | 60,000 | ||||||||
Accounts Payable | 103,560 | 102,200 | ||||||||||
Bonds Payable | 77,000 | 190,000 | ||||||||||
Bond Premium | 1,200 | |||||||||||
Common Stock | 182,000 | 82,000 | ||||||||||
Retained Earnings | 212,000 | 32,000 | ||||||||||
Sales | 212,000 | 128,000 | ||||||||||
Interest Income | 5,760 | |||||||||||
Income from Subsidiary | 29,400 | |||||||||||
Total | $ | 977,160 | $ | 977,160 | $ | 599,960 | $ | 599,960 | ||||
Required: |
a. | Prepare the journal entry or entries for 20X2 on Porters books related to its investment in Temple. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
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