Prince Corporation holds 75 percent of the common stock of Sword Distributors Inc., purchased on December 31, 20X1, for $2,220,000. At the date of acquisition, Sword reported common stock with a par value of $940,000, additional paid-in capital of $1,290,000, and retained earnings of $530,000. The fair value of the noncontrolling interest at acquisition was $740,000. The differential at acquisition was attributable to the following items: Inventory (sold in 20x2) $ 50, 090 Land 70 , 090 Goodwill 80, 090 Total Differential $200, 090 During 202, Prince sold a plot of land that it had purchased several years before to Sword at a gain of $28,000; Sword continues to hold the land. In 20X6, Prince and Sword entered into a five-year contract under which Prince provides management consulting services to Sword on a continuing basis; Sword pays Prince a fixed fee of $92,000 per year for these services. At December 31, 20X8, Sword owed Prince $23,000 as the final 20X8 quarterly payment under the contract. On January 2, 20X8, Prince paid $240,000 to Sword to purchase equipment that Sword was then carrying at $280,000. Sword had purchased that equipment on December 27, 20X2, for $420,000. The equipment is expected to have a total 15-year life and no salvage value. The amount of the differential assigned to goodwill has not been impaired. At December 31, 20X8, trial balances for Prince and Sword appeared as follows: Prince Corporation Sword Distributors Inc. Item Debit Credit Debit Credit Cash $ 57, 700 $ 45, 000 Current Receivables 102, 800 90, 400 Inventory 295, 090 218, 900 Investment in Sword Distributors 2,900, 750 Land 409, 000 1, 218,000 Buildings & Equipment 2, 500, 090 3, 060, 090 Cost of Goods Sold 2, 190, 090 513, 000 Depreciation & Amortization 199, 090 76,900 Other Expenses 1, 367, 090 209, 900 Dividends Declared 48, 090 18,000 Accumulated Depreciation $ 1, 094, 006 $ 407, 000 Current Payables 87, 200 311, 300 Bonds Payable 991, 006 195, 000 Common Stock 85, 000 940, 000 Additional Paid-in Capital 1, 266, 006 1, 290, 090 Retained Earnings, January 1 1, 470, 806 1, 340, 090 Sales 4, 828, 000 997, 090 Other Income or Loss 95, 000 32, 900 Income from Sword Distributors 152, 250 Total $10, 069, 250 $10, 069, 250 $5, 480, 300 $5, 480, 300As of December 31, 20X8, Sword had declared but not yet paid its fourth-quarter dividend of $5,000. Both companies use straight-line depreciation and amortization. Prince uses the fully adjusted equity method to account for its investment in Sword. Required: a. Compute the amount of the differential as of January 1, 20X8. Answer is complete and correct. Remaining differential 150,000 b. Verify the balance in Prince's Investment in Sword Distributors account as of December 31, 20X8. * Answer is complete but not entirely correct. Balance in Investment in Sword Account $ 2,901,750 xPart A Computation of differential as of Jan 1, 20X8: Original differential at December 31, 20X8 200000 Less: Portion written off for sale of inventory -50000 Remaining differential, Jan 1, 20KB 150000 Part B Verification of balance in investment in Sword Stock Account Sword retained earnings, Jan 1 20X8 1340000 Sword net income, 20KB Sales 997000 COGS -513000 Depreciation and amortization -76000 Other expenses -209000 Other income (loss) 32000 Net income 167000 Sword dividends, 20X8 -18000 Sword retained earnings, Dec 31 20X8 1489000 Sword stockholders equity Common stock 940000 Additional paid-in capital 1290 000 Retained earnings Dec 31 20X8 1489000 Stockholders equity 3719000 Multiply: Prince ownership share 75%% Book calve of shares held by Prince 2789250 Add: Remaining differential (150000 x.75) 112500 Balance in investment in Sword Stock Account 2901750