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6 Equity Entries with Differential Ennis Corporation acquired 35 percent of Jackson Corporation's stock on January 1, 20X8, by issuing 25,000 shares of its $2 par value common stock. Jackson Corporation's balance sheet immediately before the acquisition contained the following items: JACKSON CORPORATION Balance Sheet January 1, 20X8 Book Value Fair Value Assets Cash & Receivables Inventory (FIFO basis) Land $ 40,000 80,000 50,000 240,000 $410,000 $ 40,000 100,000 70,000 320,000 $530,000 Buildings & Equipment (net) Total Assets Liabilities & Equities Accounts Payable Common Stock Retained Earnings Total Liabilities & Equities $ 70,000 $ 70,000 130,000 210,000 $410,000 Shares of Ennis were selling at $8 at the time of the acquisition. On the date of acquisition, the remaining economic life of buildings and equipment held by Jackson was 20 years. The amount of the differential assigned to goodwill is not impaired. For the year 20X8, Jackson reported net income of $70,000 and paid dividends of $10,000. P5-26 Equity Method with Differential Assume that Plug Corporation has significant influence (NOT control!) over Spark Corporation. a. For internal reporting, prepare the following journal entries for Plug: (1) Record initial investment at 1/1/20X8: (Note that Plug issued stock to acquire 35% of Spark's stock; Plug did not pay cash) (2) The amount of goodwill included in this acquisition = $ Show work! (Note that Plug did not acquire 100% of Spark.) (3) Record investment income at 12/31/20X8: Show work! (4) Record cash dividend received (in cash) during 12/31/20X8: Show work! b. For external reporting, Plug should report: (Hint: Would internal reporting be different from external reporting when investing company has significant influence over investee?) Investment income from Spark for 20X8 = $ Investment in Spark at December 31, 20X8 = $ Show work! 6 Equity Entries with Differential Ennis Corporation acquired 35 percent of Jackson Corporation's stock on January 1, 20X8, by issuing 25,000 shares of its $2 par value common stock. Jackson Corporation's balance sheet immediately before the acquisition contained the following items: JACKSON CORPORATION Balance Sheet January 1, 20X8 Book Value Fair Value Assets Cash & Receivables Inventory (FIFO basis) Land $ 40,000 80,000 50,000 240,000 $410,000 $ 40,000 100,000 70,000 320,000 $530,000 Buildings & Equipment (net) Total Assets Liabilities & Equities Accounts Payable Common Stock Retained Earnings Total Liabilities & Equities $ 70,000 $ 70,000 130,000 210,000 $410,000 Shares of Ennis were selling at $8 at the time of the acquisition. On the date of acquisition, the remaining economic life of buildings and equipment held by Jackson was 20 years. The amount of the differential assigned to goodwill is not impaired. For the year 20X8, Jackson reported net income of $70,000 and paid dividends of $10,000. P5-26 Equity Method with Differential Assume that Plug Corporation has significant influence (NOT control!) over Spark Corporation. a. For internal reporting, prepare the following journal entries for Plug: (1) Record initial investment at 1/1/20X8: (Note that Plug issued stock to acquire 35% of Spark's stock; Plug did not pay cash) (2) The amount of goodwill included in this acquisition = $ Show work! (Note that Plug did not acquire 100% of Spark.) (3) Record investment income at 12/31/20X8: Show work! (4) Record cash dividend received (in cash) during 12/31/20X8: Show work! b. For external reporting, Plug should report: (Hint: Would internal reporting be different from external reporting when investing company has significant influence over investee?) Investment income from Spark for 20X8 = $ Investment in Spark at December 31, 20X8 = $ Show work