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QUESTION 14 Please use the following question to answer questions 14-20: On January 1, 2010, P Company purchased an 80% interest in S Company for

QUESTION 14

  1. Please use the following question to answer questions 14-20:

    On January 1, 2010, P Company purchased an 80% interest in S Company for $900,000. At that time, S Company had capital stock of $600,000 and retained earnings of $100,000. Differences between the fair value and the book value of the identifiable assets of Salem Company were as follows:

    Fair Value in Excess of Book Value

    Equipment

    $ 180,000

    Land

    20,000

    Inventory

    20,000

    The book values of all other assets and liabilities of S Company were equal to their fair values on January 1, 2010. The equipment had a remaining life of five years. The inventory was sold in 2010.

    S Companys net income and dividends declared in 2010 Net Income of $120,000; Dividends Declared of $30,000

    14. Prepare JE at date of purchase

QUESTION 15

  1. 15. Prepare W/P at date of purchase to eliminate the equity of S and investment of P (see above question)

QUESTION 16

  1. 16. Prepare W/P to allocate the differences (see above question)

QUESTION 17

  1. 17. Prepare J/E under cost method for NI and Dividends (see above question)

QUESTION 18

  1. 18. Prepare W/P entries to eliminate Dividends and convert cost to equity (see above question)

QUESTION 19

  1. 19. Prepare W/P entry to eliminate the equity of S and investment of P at 12/31 (see above question)

QUESTION 20

  1. 20. Prepare W/P to allocate differences (all inventory has been sold), and the extra depreciation entry (see above question)

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