Question

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Prince Corporation acquired 100 percent of Sword Company on January 1, 20X7, for $183,000. The trial...

Prince Corporation acquired 100 percent of Sword Company on January 1, 20X7, for $183,000. The trial balances for the two companies on December 31, 20X7, included the following amounts:

Prince Corporation Sword Company
Item Debit Credit Debit Credit
Cash $ 88,000 $ 27,000
Accounts Receivable 53,000 58,000
Inventory 182,000 120,000
Land 86,000 22,000
Buildings and Equipment 491,000 155,000
Investment in Sword Company 233,000
Cost of Goods Sold 491,000 258,000
Depreciation Expense 21,000 11,000
Other Expenses 62,000 62,000
Dividends Declared 55,000 23,000
Accumulated Depreciation $ 139,000 $ 55,000
Accounts Payable 54,000 30,000
Mortgages Payable 187,000 117,000
Common Stock 286,000 43,000
Retained Earnings 331,000 84,000
Sales 692,000 407,000
Income from Sword Company 73,000
$ 1,762,000 $ 1,762,000 $ 736,000 $ 736,000

Additional Information

  1. On January 1, 20X7, Sword reported net assets with a book value of $127,000. A total of $23,000 of the acquisition price is applied to goodwill, which was not impaired in 20X7.
  2. Sword’s depreciable assets had an estimated economic life of 11 years on the date of combination. The difference between fair value and book value of tangible assets is related entirely to buildings and equipment.
  3. Prince used the equity-method in accounting for its investment in Sword.
  4. Detailed analysis of receivables and payables showed that Sword owed Prince $25,000 on December 31, 20X7.

Additional Information

  1. On January 1, 20X7, Sword reported net assets with a book value of $127,000. A total of $23,000 of the acquisition price is applied to goodwill, which was not impaired in 20X7.
  2. Sword’s depreciable assets had an estimated economic life of 11 years on the date of combination. The difference between fair value and book value of tangible assets is related entirely to buildings and equipment.
  3. Prince used the equity-method in accounting for its investment in Sword.
  4. Detailed analysis of receivables and payables showed that Sword owed Prince $25,000 on December 31, 20X7.


Required:
a. Prepare all journal entries recorded by Prince with regard to its investment in Sword during 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b. Prepare all consolidating entries needed to prepare a full set of consolidated financial statements for 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Solutions

Expert Solution

a. Journal entries recorded by prince with regard to investment in sword during 20X7

S. No particulars debit credit
1. Investment in sword Co. $183,000
Cash 183,000
2. Investment in sword Co (sales -COGS-depreciation -other expenses) =
Income from sword company
3. Cash (dividend from sword) $23000
Investment in sword Co $23000
4. Income from sword company ($183,000-$23000-$127,000)/11 $3000
Investment in sword Co $3000

(b)  

S. No particulars debit credit
1. Common stock
Retained earnings
Income from sword company
Dividend declared $23,000
Investment in sword Co (Bal fig)
(being consolidation entry recorded)
2. Depreciation FV-BV-GW = $183,000-$127000-$23000=$33000/11=$3000 3000
Income from sword company 3000
(being amortized excess value recorded)
3. Building and equipment $33000
Goodwill $23000
Accumulated depreciation $3000
Investment in sword Co (Bal fig) $53,000
(being excess value differential recorded)
4. Accounts payable $25000
Accounts receivable $25000
(being both eliminated)
5. Acc. Depreciation
Building &equipment

Note : Sword Co credit side is missing in question so I leaved blank space in entries

ekkarill92 answered 2 years ago
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