Problem 1

On 1/1/20x1, Petwoud Company acquired 100% of the $1 par value outstanding voting common stock of Supagud, Inc. for a cash payment of $600,000. At the acquisition date, the fair value of Petwoud Company's common stock was $20 per share.Below is the summary balance sheet information of Supagud, Inc. at acquisition (1/1/20x1):

Debit Credit

Accounts Payable 60,000

Accounts Receivable 50,000

Additional Paid-In-Capital 60,000

Buildings (net) (20-year life) 140,000

Cash and short-term investments 70,000

Common Stock 300,000

Equipment (net) (8-year life) 240,000

Intangible Assets (indefinite life) 110,000

Land 90,000

Long-term liabilities (mature 12/31/x3) 180,000

Retained Earnings, 1/1/x1 120,000

Supplies 20,000

Totals 720,000

Book Value of Net Equity 480,000

During fiscal year-ending 12/31/20x1 and 12/31/20x2, Supagud, Inc. generated net income and paid dividends as follows:

Net income Dividends

20x1 $104,000 $13,000

20x2 $142,000 $30,000

As of 1/1/20x1, Supagud's land had a fair value of $102,000, its buildings were valued at $188,000, and its equipment was appraised at $216,000.According to Petwoud Company's analysis, they will record any excess of consideration paid over fair value of assets and liabilities acquired as a Patent asset to be amortized over 6 years.

Required

A.Using the acquisition method and assuming that Petwoud dissolves Supagud, Inc. so it is no longer in business, prepare Petwoud Company's journal entry to record the acquisition of Supagud, Inc. at 1/1/20x1.

For B. and C. below, assume Supagud remains in business as a separate operating company and that, for internal accounting purposes, Petwoud accounts for their investment in Supagud, Inc. using the equity method:

B.Prepare Petwoud Company's journal entry to record the acquisition of Supagud, Inc. at 1/1/20x1.

C.Prepare Petwoud Company's worksheet consolidation journal entries for:

i.December 31, 20x1 and

ii.December 31, 20x2.