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Chap005_Day2&amp;3_Classproblems_Solu

# Chap005_Day2&amp;3_Classproblems_Solu - Solutions to...

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Solutions to Chapter 5 Days 2&3 In‐class Problems 1 E5-12 Differential Assigned to Amortizable Asset a. Lancaster Company’s common stock, January 1, 20X1 \$120,000 Lancaster Company’s retained earnings, January 1, 20X1 380,000 Book value of Lancaster’s net assets \$500,000 Proportion of stock acquired x .90 Book value of Lancaster's shares purchased by Major Corporation \$450,000 Excess of acquisition price over book value 36,000 Fair value of consideration given \$486,000 Add: Share of Lancaster's net income (\$60,000 x .90) 54,000 Less: Amortization of patents (\$40,000 / 5) x .90 (7,200) Dividends paid by Lancaster (\$20,000 x .90) (18,000 ) Balance in investment account, December 31, 20X1 \$514,800 b. Eliminating entries, December 31, 20X1: E(1) Income from Subsidiary 46,800 Dividends Declared 18,000 Investment in Lancaster Company Stock 28,800 Eliminate income from subsidiary: \$46,800 = (\$60,000 x .90) – (\$8,000 x .90) E(2) Income to Noncontrolling Interest 5,200 Dividends Declared 2,000 Noncontrolling Interest 3,200 Assign income to noncontrolling interest: \$5,200 = (\$60,000 - \$8,000) x .10 \$2,000 = \$20,000 x .10 E(3) Common Stock — Lancaster Company 120,000 Retained Earnings, January 1 380,000 Differential 40,000 Investment in Lancaster Company Stock 486,000 Noncontrolling Interest 54,000 Eliminate investment balance: \$40,000 = (\$486,000 + \$54,000) - \$500,000 E(4) Patents 40,000 Differential 40,000 Assign differential. E(5) Amortization Expense 8,000 Patents 8,000 Amortize differential related to patents.

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