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In: Accounting

Potter Corporation buys 30% of Sunshine Supply Company on January 1, 2017, for      $300,000.  The equity method...

Potter Corporation buys 30% of Sunshine Supply Company on January 1, 2017, for

     $300,000.  The equity method of accounting is to be used.  Sunshine’s net assets on

     that date were $750,000.  Any excess of cost over book value is attributable to a

     customer list with a 10-year remaining life.  Sunshine immediately begins supplying

     inventory to Potter as follows:

Year

Cost to

Sunshine

Transfer

Price

Sunshine’s

Gross Profit %

Amount Held

By Potter at

Year-end

(at transfer price)

2017

$70,000

$100,000

30%

$25,000

2018

$96,000

$150,000

36%

$45,000

    

Inventory held at the end of one year by Potter is sold at the beginning of the next.

Sunshine’s net income was $80,000 for 2017 and is $110,000 for 2018.  Sunshine

paid dividends of $30,000 each year.

Required:

Prepare all of Potter’s entries for 2017 and 2018 related to its investment in Sunshine.

Account Title

Debit

Credit

********2017********

********2018********

Solutions

Expert Solution

Here are the relevant journal entries for Year ending 2017 and 2018.

ekkarill92 answered 1 year ago
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