Ch1 HW - 14. (20 Minutes) (Equity entries for one year,...

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Unformatted text preview: 14. (20 Minutes) (Equity entries for one year, includes conversion to equity method) The 2008 purchase must be restated to the equity method. FIRST PURCHASE—JANUARY 1, 2008 Purchase Price of Denton Stock............................................. $210,000 Book Value of Denton Stock ($1,700,000 × 10%).................. (170,000 ) Cost in Excess of Book Value................................................. $40,000 Excess Cost Assigned to Undervalued Land ($100,000 × 10%)................................................................... (10,000 ) Trademark................................................................................. $30,000 Life of Trademark..................................................................... 10 years Annual Amortization................................................................ $3,000 BOOK VALUE—DENTON—JANUARY 1, 2008 January 1, 2008 Book Value (given)....................................... $1,700,000 2008 Net Income....................................................................... 240,000 2008 Dividends......................................................................... (90,000 ) January 1, 2009 Book Value................................................ $1,850,000 14. (continued) SECOND PURCHASE—JANUARY 1, 2009 Purchase Price of Denton Stock......................................... $600,000 Book Value of Denton Stock (above)($1,850,000 × 30%). (555,000 ) Cost in Excess of Book Value............................................. $45,000 Excess Cost Assigned to Undervalued Land ($120,000 × 30%)............................................................... (36,000 ) Trademark............................................................................. $9,000 Life of Trademark................................................................. 9 years Annual Amortization............................................................ $1,000 Entry One —To record second acquisition of Denton stock. Investment in Denton.................................................. 600,000 Cash........................................................................ 600,000 Entry Two —To restate reported figures for 2008 to the equity method for comparability. Reported income will be $24,000 (10% of Denton’s income) less $3,000 (amortization on first purchase) for a net figure of $21,000. Originally, $9,000 would have been reported by Walters (10% of the dividends). Adjustment here raises the $9,000 to $21,000 for 2008. Investment in Denton.................................................. 12,000 Retained Earnings—Prior Period Adjustment— 2008 Equity Income............................................... 12,000 Entry Three —To record income for the year: 40% of the $300,000 reported balance....
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This note was uploaded on 03/06/2011 for the course ECON 435 taught by Professor Galven during the Spring '11 term at Ill. Chicago.

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Ch1 HW - 14. (20 Minutes) (Equity entries for one year,...

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