Question Four: (10 marks) (B1, C3)

On September 30, 2019, X Corporation paid $450,000 for 75% of the outstanding $1 par common stock of Y Company and $80,000 for legal fees in connection with the business combination. On that date, Y's stockholders' equity was as follows:

Common stock, $1 par $100,000

Additional paid-in capital 150,000

Retained earnings 200,000

Total stockholders' equity $450,000

Current fair values of Y's inventories (first-in, first-out cost) and depreciable plant assets (net) exceeded their carrying amounts by $20,000 and $90,000, respectively, on September 30, 2019. Current fair values of Y's other identifiable net assets equaled their carrying amounts on that date. Y's depreciable plant assets had a composite economic life of nineyears on September 30, 2019. During that year 30% of the inventories were sold.

For the fiscal year ended September 30, 2020, Y had a net income of $80,000, but did not declare dividends, and the goodwill was impaired by 10%.

Instructions:

1. Prepare X Corporation's journal entries to record the business combination of X and Y Company on September 30, 2019. (3 marks)
2. Prepare working paper elimination (in journal entry format) for X Corporation and subsidiary on September 30, 2019. (2 marks)
3. Prepare amortization schedule for X Corporation and subsidiary on September 30,2020. (3 marks)
4. Prepare X Corporation's journal entries, under the equity method of accounting, to record Y Company's operating results for the fiscal year ended September 30, 2020. (2 marks)