Prime Corporation acquired 80 percent of Steak Company's voting shares on January 1, 20X4, for $302,720 in cash and marketable securities. At that date, the noncontrolling interest had a fair value of $75,680 and Steak reported net assets of $328,400. Assume Prime uses the fully adjusted equity method. Trial balances for the two companies on December 31, 20X7, are as follows Prime Corporation Debit Item Cash Accounts Receivable Inventory Credit Buildings & Equipment $137,300 87,000 177,000 Steak Company Debit Credit $17,000 77,000 117,000 Investment in Steak Company 670,000 470,000 314,850 Other Expenses Dividends Declared Cost of Goods Sold Depreciation Expense Accumulated Depreciation Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-in Capital 423,600 200,000 30,000 20,000 31,000 25,000 57,000 32,000 $317,000 $106,000 107,000 370,000 207,000 22,200 170,000 4,400 107,000 16,000 Retained Earnings Sales Other Income Income from Steak Company Total 354,720 239,400 514,000 265,000 27,400 37,000 30,660 $1,927,780 $1,927,780 $967,000 $967,000 Additional Information 1. The full amount of the differential at acquisition was assigned to buildings and equipment with a remaining 10-year economic life 2. Prime and Steak regularly purchase inventory from each other. During 20X6, Steak Company sold inventory costing $32.500 to Prime Corporation for $50,000, and Prime resold 60 percent of the inventory in 20X6 and 40 percent in 20X7 Also in 20X6, Prime sold Inventory costing $22.500 to Steak for $30,000. Steak resold two-thirds of the inventory in 20X6 and one-third in 20x7 3. During 20X7, Steak sold inventory costing $27,300 to Prime for $42,000, and Prime sold items purchased for $12,000 to Steak for $16,000. Before the end of the year, Prime resold one-third of the inventory it purchased from Steak in 20X7 Steak continues to hold all the units purchased from Prime during 20x7 Accumulated Depreciation Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-in Capital Retained Earnings Sales Other Income Income from Steak Company Total Additional Information $317,000 $106,000 107,000 22,200 370,000 170,000 4,400 207,000 107,000 16,000 354,720 239,400 514,000 265,000 27,400 37,000 30,660 $1,927,780 $1,927,780 $967,000 $967,000 1. The full amount of the differential at acquisition was assigned to buildings and equipment with a remaining 10-year economic life. 2. Prime and Steak regularly purchase inventory from each other. During 20X6, Steak Company sold inventory costing $32,500 to Prime Corporation for $50,000, and Prime resold 60 percent of the inventory in 20X6 and 40 percent in 20X7. Also in 20X6, Prime sold inventory costing $22,500 to Steak for $30,000 Steak resold two-thirds of the inventory in 20X6 and one-third in 20x7 3. During 20X7, Steak sold inventory costing $27,300 to Prime for $42,000, and Prime sold items purchased for $12,000 to Steak for $16,000. Before the end of the year, Prime resold one-third of the inventory it purchased from Steak in 20X7 Steak continues to hold all the units purchased from Prime during 20x7 4. Steak owes Prime $12,000 on account on December 31, 20X7 5. Assume that both companies use straight-line depreciation and that no property, plant, and equipment has been purchased since the acquisition. On December 31, 20X7, Prime Corporation recorded the following entry on its books to adjust from the fully adjusted equity method to the modified equity method for its investment in Steak Company stock General Journal Investment in Steak Company Stock Retained Earnings Income from Steak Company Required Debit Credit 11,840 8,100 3,740 Required: a. Show the effects of the data which is reported by Prime in the trial balance for the preceding adjusting entry. Cash Item Accounts receivable Inventory Buildings and equipment Investment in Steak Company Cost of goods sold Depreciation expense Other expenses Dividends declared Accumulated depreciation Accounts payable Bonds payable Bond premium Common stock Additional Paid-in capital Retained earnings Sales Other income Income from subsidiary Total PRIME CORPORATION Debit Credit STEAK COMPANY Debit Credit S 0 S $ $ 0 b. Prepare the journal entries that would have been recorded on Prime's books during 20X7 under the modified equity method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet