Prince Corporation acquired 100 percent of Sword Company on January 1, 20X7, for $178,000. The trial balances for the two companies on December 31, 20X7, included the following amounts: Sword Company Debit Credit Item Prince Corporation Debit Credit Cash $ 93,000 $ 34,000 Accounts Receivable 61,000 66,000 Inventory 175,000 118,000 Land 91,000 Buildings and Equipment 494,000 Investment in Sword Company 228,000 Cost of Goods Sold 494,000 29,000 157,000 255,000 Depreciation Expense Other Expenses Dividends Declared Accumulated Depreciation Accounts Payable Mortgages Payable Common Stock Retained Earnings Sales Income from Sword Company 23,000 60,000 13,000 60,000 69,000 21,000 $ 151,000 59,000 $ 65,000 33,000 181,000 294,000 129,000 42,000 342,000 82,000 690,000 402,000 71,000 $1,788,000 $1,788,000 $753,000 $753,000 Additional Information 1. On January 1, 20X7, Sword reported net assets with a book value of $124,000. A total of $21,000 of the acquisition price is applied to goodwill, which was not impaired in 20X7. 2. Sword's depreciable assets had an estimated economic life of 11 years on the date of combination. The difference between fair value and book value of tangible assets is related entirely to buildings and equipment. 3. Prince used the equity-method in accounting for its investment in Sword. 4. Detailed analysis of receivables and payables showed that Sword owed Prince $28,000 on December 31, 20X7. Required: a. Prepare all journal entries recorded by Prince with regard to its investment in Sword during 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Required: a. Prepare all journal entries recorded by Prince with regard to its investment in Sword during 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Answer is complete but not entirely correct. No A Event 1 General Journal Debit Credit Investment in Sword Company Cash B 2 Investment in Sword Company Income from Sword Company > > >> 188,000 188,000 59,000 59,000 0 3 Cash Investment in Sword Company 24,000 x 24,000 D 4 Income from Sword Company 3,000 Investment in Sword Company 3,000 b. Prepare all consolidating entries needed to prepare a full set of consolidated financial statements for 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Answer is complete but not entirely correct. No A Event 1 Common stock Retained earnings Accounts Income from Sword Company Dividends declared Investment in Sword Company Debit Credit 44,000 87,000 59,000 24,000 166,000 B 2 Depreciation expense 3,000 Income from Sword Company 3,000 C 3 Buildings and equipment 33,000 Goodwill 24,000 Accumulated depreciation 3,000 Investment in Sword Company 54,000 D 4 Accounts payable Accounts receivable 27,000 27,000 E 5 Accumulated depreciation 60,000 Buildings and equipment 60,000 c. Prepare a three-part consolidation worksheet as of December 31, 20X7. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.) Answer is not complete. PRINCE CORPORATION AND SUBSIDIARY Consolidated Financial Statements Worksheet December 31, 20X7 Consolidation Entries Prince Corp Sword Co DR CR Consolidated Income Statement Sales $ 691,000 $ 401,000 $ 1,092,000 Less: COGS (492,000) x (257,000) x (749,000) Less: Depreciation expense (25,000) x (15,000) x) 3,000 (43,000) Less: Other expenses (70,000) x (70,000) x (140,000) Income from Sword Co. 56,000 59,000 3,000 0 Net Income $ 160,000 $ 59,000 $ 62,000 $ 3,000 $ 160,000 Statement of Retained Earnings Beginning balance $ 329,000 $ 87,000 $ 87,000 $ 329,000 Net income 160,000 59,000 62,000 3,000 160,000 Less: Dividends declared (59,000) x) (24,000) x 24,000 x (59,000) Ending Balance $ 430,000 $ 122,000 $ 149,000 $ 27,000 $ 430,000 Balance Sheet Assets Cash $ 92,000 $ 31,000 $ 123,000 Accounts receivable 64,000 69,000 27,000 106,000 Inventory 178,000 x 118,000 296,000 Land 90,000 26,000 116,000 Buildings & equipment 492,000 Less: Accumulated depreciation (150,000) x 161,000 (75,000) 33,000 686,000 3,000 (228,000) Investment in Sword Co. 220,000 x 220,000 0 Goodwill Total Assets $ 986,000 $ 330,000 $ 24,000 57,000 24,000 $ 250,000 $ 1,123,000 Liabilities & Equity Accounts payable $ 67,000 $ 32,000 $ 27,000 $ 72,000 Mortgages payable 199,000 132,000 331,000 Common stock Retained earnings 290,000x 44,000 430,000 122,000 Total Liabilities & Equity $ 986,000 $ 330,000 44,000 149,000 $ 220,000 290,000 27,000 430,000 $ 27,000 $ 1,123,000