Question
Prince Corporation acquired 100 percent of Sword Company on January 1, 20X7, for $188,000. The trial balances for the two companies on December 31, 20X7,
Prince Corporation acquired 100 percent of Sword Company on January 1, 20X7, for $188,000. The trial balances for the two companies on December 31, 20X7, included the following amounts:
Prince Corporation | Sword Company | ||||||||||||||||
Item | Debit | Credit | Debit | Credit | |||||||||||||
Cash | $ | 94,000 | $ | 39,000 | |||||||||||||
Accounts Receivable | 53,000 | 58,000 | |||||||||||||||
Inventory | 188,000 | 108,000 | |||||||||||||||
Land | 92,000 | 34,000 | |||||||||||||||
Buildings and Equipment | 494,000 | 161,000 | |||||||||||||||
Investment in Sword Company | 217,000 | ||||||||||||||||
Cost of Goods Sold | 494,000 | 257,000 | |||||||||||||||
Depreciation Expense | 24,000 | 14,000 | |||||||||||||||
Other Expenses | 74,000 | 74,000 | |||||||||||||||
Dividends Declared | 56,000 | 26,000 | |||||||||||||||
Accumulated Depreciation | $ | 151,000 | $ | 70,000 | |||||||||||||
Accounts Payable | 64,000 | 28,000 | |||||||||||||||
Mortgages Payable | 189,000 | 141,000 | |||||||||||||||
Common Stock | 294,000 | 45,000 | |||||||||||||||
Retained Earnings | 348,000 | 84,000 | |||||||||||||||
Sales | 685,000 | 403,000 | |||||||||||||||
Income from Sword Company | 55,000 | ||||||||||||||||
$ | 1,786,000 | $ | 1,786,000 | $ | 771,000 | $ | 771,000 | ||||||||||
Additional Information
- On January 1, 20X7, Sword reported net assets with a book value of $129,000. A total of $26,000 of the acquisition price is applied to goodwill, which was not impaired in 20X7.
- Swords 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.
- Prince used the equity-method in accounting for its investment in Sword.
- Detailed analysis of receivables and payables showed that Sword owed Prince $23,000 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.)
Journal entry worksheet
- Record the initial investment in Sword Co.
Note: Enter debits before credits.
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Journal entry worksheet
- Record Prince Corp's share of Sword Co.'s 20X7 income.
Note: Enter debits before credits.
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- Record Prince Corp's share of Sword Co.'s 20X7 dividend.
Note: Enter debits before credits.
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- Record the amortization of the excess acquisition price.
Note: Enter debits before credits.
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