Problem 05-02 (LO2, 3, 5) Large Ltd. purchased 70% of Small Company on January 1, Year 6, for $700,000, when the statement of financial position for Small showed common shares of $470,000 and retained earnings of $170,000. On that date, the inventory of Small was undervalued by $47,000, and a patent with an estimated remaining life of five years was overvalued by $72,000. Small reported the following subsequent to January 1, Year 6: Profit (Loss) Dividends Year 6 $108,000 $32,000 Year 7 (42,000) Year 8 97,000 17,000 47,000 A test for goodwill impairment on December 31, Year 8, indicated a loss of $20,000 should be reported for Year 8 on the consolidated income statement. Large uses the cost method to account for its investment in Small and reported the following for Year 8 for its separate-entity statement of changes in equity: Retained earnings, beginning Profit $570,000 270,000 (63,000) Dividends Retained earnings, end $777,000 (b) Compute the following on the consolidated financial statements for the year ended December 31, Year 8: (Omit $ sign in your response.) (i) Goodwill Goodwill $ 301700 O (ii) Non-controlling interest on the statement of financial position Non-controlling interest $312150 (iii) Retained earnings, beginning of year Retained earnings, beginning of year $ 596640 (iv) Profit attributable to Large's shareholders Profit attributable to Large's shareholders $ 331710 (v) Profit attributable to non-controlling interest Profit attributable to non-controlling interest $28590 O 4* (c) Now assume that Large is a private entity, uses ASPE, and chooses to use the equity method to report its investment in Small. (1) Prepare Large's journal entries for each year related to its investment in Small. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Year 6 Answer is complete but not entirely correct. No Date General Journal Credit Investment in Small Cash 700,000 Investment in Small 84,000 22,400 28,280 1 2 3 4 Year 6 Year 6 Year 6 Year 6 Equity method income Investment in Small Equity method income Investment in Small Cash 30 Debit 700,000 84,000 X 22,400 28,280 X No 1 2 3 Date Year 7 Year 7 Year 7 Answer is complete but not entirely correct. General Journal Equity method loss Investment in Small Investment in Small Cash Investment in Small Equity method loss >> >> Debit 31,500 x 11,900 10,920 x Credit 31,500 11,900 10,920 Year 8 No 1 2 3. Date Year 8 Year 8 Year B Answer is complete but not entirely correct. General Journal Investment in Small Equity method income Investment in Small Equity method income Investment in Small Cash ? Debit 700,000 32,900 3,290 Credit 700,000 32,900 3,290 x (ii) Determine the investment in Small at December 31, Year 8. (Omit $ sign in your response.) Investment in Small under equity method $728350 O
