Prince Corporation holds 75 percent of the common stock of Sword Distributors Inc. purchased on December 31, 20x1, for $2.100,000. At the date of acquisition, Sword reported common stock with a par value of $920,000, additional paid-in capital of $1,270,000, and retained earnings of $540,000. The fair value of the noncontrolling interest at acquisition was $700,000. The differential at acquisition was attributable to the following items: Inventory (sold in 20x2) Land Goodwill Total Differential $17,500 $ 24,500 28,000 $70,000 During 20x2, Prince sold a plot of land that it had purchased several years before to Sword at a gain of $9,800: 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 $82,000 per year for these services. At December 31, 20X8, Sword owed Prince $20,500 as the final 20X8 quarterly payment under the contract. On January 2, 20X8, Prince paid $260,000 to Sword to purchase equipment that Sword was then carrying at $300,000. Sword had purchased that equipment on December 27, 20X2, for $450,000. 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: Sword Distributors Inc. Debit Credit $ 48,000 98,400 226,900 Item Cash Current Receivables Inventory Investment in Sword Distributors Land Buildings & Equipment Cost of Goods Sold Depreciation & Amortization Other Expenses Dividends Declared Accumulated Depreciation Current Payables Bonds Payable Common Stock Additional Paid-in Capital Retained Earnings, January 1 Sales Other Income or Loss Income from Sword Distributors Total Prince Corporation Debit Credit $ 60, 700 110,800 296,000 2,792,575 401,000 2,540,000 2,186,000 201,000 1,369,000 45,000 $ 1,096,000 89, 200 813,000 96,000 1,266,000 1,470,800 4,929,325 100,000 141,750 $10,002, 075 $10,002,075 1,210,000 3,160,000 514,000 71,000 217,000 15,000 $ 411,000 493,300 191,000 920,000 1,270,000 1,320,000 985,000 30,000 $5,590,300 $5,590,300 As 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 $ 52,500 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 S 1 1 x Prepare and complete a three-part worksheet for the preparation of consolidated financial statements for 20X8. (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.) Prince CORPORATION AND SUBSIDIARY Consolidated Financial Statement Worksheet December 31, 20X8 Consolidation Entries Sword Prince Corp. DR CR Dist. Consolidated Income Statement Sales 0 0 0 0 0 Other income (loss) Less: COGS Less: Depreciation & amort expense Less: Other expenses Income from Sword Dist. Consolidated net income NCI in net income Controlling Interest in NI Statement of Retained Earnings Beginning balance Net income Less: Dividends declared Ending Balance Balance Sheet 0 0 0 0 0 0 0 0 0 0 Cash Current receivables Inventory Land Buildings & equipment Less: Accumulated depr Investment in Sword Dist. Goodwill Total Assets Current payables Bonds payable Common stock 0 0 0 0 0 Additional Paid-in capital Retained earnings NCI in NA of Sword Dist Total Liabilities & Equity 0 0 0 0 0 Prince Corporation holds 75 percent of the common stock of Sword Distributors Inc. purchased on December 31, 20x1, for $2.100,000. At the date of acquisition, Sword reported common stock with a par value of $920,000, additional paid-in capital of $1,270,000, and retained earnings of $540,000. The fair value of the noncontrolling interest at acquisition was $700,000. The differential at acquisition was attributable to the following items: Inventory (sold in 20x2) Land Goodwill Total Differential $17,500 $ 24,500 28,000 $70,000 During 20x2, Prince sold a plot of land that it had purchased several years before to Sword at a gain of $9,800: 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 $82,000 per year for these services. At December 31, 20X8, Sword owed Prince $20,500 as the final 20X8 quarterly payment under the contract. On January 2, 20X8, Prince paid $260,000 to Sword to purchase equipment that Sword was then carrying at $300,000. Sword had purchased that equipment on December 27, 20X2, for $450,000. 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: Sword Distributors Inc. Debit Credit $ 48,000 98,400 226,900 Item Cash Current Receivables Inventory Investment in Sword Distributors Land Buildings & Equipment Cost of Goods Sold Depreciation & Amortization Other Expenses Dividends Declared Accumulated Depreciation Current Payables Bonds Payable Common Stock Additional Paid-in Capital Retained Earnings, January 1 Sales Other Income or Loss Income from Sword Distributors Total Prince Corporation Debit Credit $ 60, 700 110,800 296,000 2,792,575 401,000 2,540,000 2,186,000 201,000 1,369,000 45,000 $ 1,096,000 89, 200 813,000 96,000 1,266,000 1,470,800 4,929,325 100,000 141,750 $10,002, 075 $10,002,075 1,210,000 3,160,000 514,000 71,000 217,000 15,000 $ 411,000 493,300 191,000 920,000 1,270,000 1,320,000 985,000 30,000 $5,590,300 $5,590,300 As 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 $ 52,500 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 S 1 1 x Prepare and complete a three-part worksheet for the preparation of consolidated financial statements for 20X8. (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.) Prince CORPORATION AND SUBSIDIARY Consolidated Financial Statement Worksheet December 31, 20X8 Consolidation Entries Sword Prince Corp. DR CR Dist. Consolidated Income Statement Sales 0 0 0 0 0 Other income (loss) Less: COGS Less: Depreciation & amort expense Less: Other expenses Income from Sword Dist. Consolidated net income NCI in net income Controlling Interest in NI Statement of Retained Earnings Beginning balance Net income Less: Dividends declared Ending Balance Balance Sheet 0 0 0 0 0 0 0 0 0 0 Cash Current receivables Inventory Land Buildings & equipment Less: Accumulated depr Investment in Sword Dist. Goodwill Total Assets Current payables Bonds payable Common stock 0 0 0 0 0 Additional Paid-in capital Retained earnings NCI in NA of Sword Dist Total Liabilities & Equity 0 0 0 0 0