Question

In: Accounting

Pratt Company purchased 60% of the outstanding voting shares of Sandy Company at the beginning of...

Pratt Company purchased 60% of the outstanding voting shares of Sandy Company at the beginning of 2013 for $480,000. At the time of purchase, Sandy Company's total stockholders' equity amounted to $650,000. Income and dividend distributions for Sandy Company from 2013 through 2015 are as follows:

2013

2014

2015

Net income (loss)

70,000

80,000

-55,000

Dividend distribution

-50,000

-40,000

-30,000

Cum. (income - dividends)

20,000

60,000

-25,000

Required:

Prepare journal entries for Pratt Company from the date of purchase through 2014 to account for its investment in Sandy Company under each of the following assumptions:

  1. Pratt Company uses the cost method to record its investment.
  2. Pratt Company uses the partial equity method to record its investment.
  3. Pratt Company uses the complete equity method to record its investment. The difference between the book value of equity acquired and the value implied by the purchase price was attributed solely to a depreciable asset, with a remaining life of 15 years

Do not copy from Chegg, otherwise, I have to report the answer.

Solutions

Expert Solution

A
1-Jan-13 Investment A/c Dr. 480000
To Cash a/c 480000
2013 Cash a/c Dr. 30000
To dividend received 30000
2014 Cash a/c Dr. 24000
To dividend received 24000
B
1-Jan-13 Investment A/c Dr. 480000
To Cash a/c 480000
31-Jan-13 Investment A/c Dr. 42000
Equity in Sandy Income A/c 42000
Cash a/c Dr. 30000
To Investment A/c 30000
31-Jan-14 Investment A/c Dr. 48000
Equity in Sandy Income A/c 48000
Cash a/c Dr. 24000
To Investment A/c 24000
C
1-Jan-13 Investment A/c Dr. 480000
To Cash a/c 480000
31-Jan-13 Equity in Sandy Income A/c 6000
To Investment A/c 6000
Investment A/c Dr. 42000
Equity in Sandy Income A/c 42000
Cash a/c Dr. 30000
To Investment A/c 30000
31-Jan-14 Income from Sandy Co. A/c Dr. 6000
To Investment A/c 6000
Investment A/c Dr. 48000
Equity in Sandy Income A/c 48000
Cash a/c Dr. 24000
To Investment A/c 24000
depreciable asset value=

Purchase price-share in sandy equity
= 480000-390000
90000
Life 15
amortization per year 6000

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Pratt Company acquired all of the outstanding shares of Spider, Inc., on December 31, 2021, for...
Pratt Company acquired all of the outstanding shares of Spider, Inc., on December 31, 2021, for $490,350 cash. Pratt will operate Spider as a wholly owned subsidiary with a separate legal and accounting identity. Although many of Spider’s book values approximate fair values, several of its accounts have fair values that differ from book values. In addition, Spider has internally developed assets that remain unrecorded on its books. In deriving the acquisition price, Pratt assessed Spider’s fair and book value...
Over a 4 year period the black corp purchased 100% of the outstanding voting shares of...
Over a 4 year period the black corp purchased 100% of the outstanding voting shares of White Co. The acquisition was made in a series of steps as follows: DATE:                             %                        Purchase Price Jan 1, Year 1 5% 5,000 Jan 1, Year 2 10% 12,000 Jan 1, Year 3 10% 15,000 Jan 1, Year 4 75% 200,000 Total 100% 232,000 Any excess of the purchase price over the net book value of the assets was attributed to goodwill. The acquisition...
Pappy Inc. purchased 80% of the outstanding voting shares of Sappy Corp. for $360,000 cash on...
Pappy Inc. purchased 80% of the outstanding voting shares of Sappy Corp. for $360,000 cash on July 1, 2015. Immediately before the acquisition, Pappy and Sappy reported the following: Statements of financial position As at July 1, 2015 Pappy Sappy Book value Book value Fair value Cash $500,000 $245,000 $245,000 Investments at amortized cost 7,000 24,000 26,000 Accounts receivable 60,000 40,000 40,000 Inventory 120,000 45,000 55,000 Equipment (net) 290,000 80,000 72,000 Patents 10,000 90,000 193,000 Total assets $987,000 $524,000 Current...
Over a 4 year period the Yellow corporation purchased 100% of the outstanding voting shares of...
Over a 4 year period the Yellow corporation purchased 100% of the outstanding voting shares of Green Co. The acquisition was made in a series of steps as follows... Date % Purchase Price January, Year 1 5% 5,000 January, Year 2 10% 12,000 January, Year 3   10% 15,000 January, Year 4 75% 200,000 Total 100% 232,000 Any excess of the purchase price over the net book value of the assets was attributed to goodwill. The acquisition in Year 3 allowed...
Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January...
Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2019. On that date, Grub Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: Errant Inc. Grub Inc. Grub Inc. (carrying value) (carrying value) (fair value) Cash $120,000 $76,000 $76,000 Accounts Receivable $80,000...
On January 1, Year 1, Present Inc. purchased 80 percent of the outstanding voting shares of...
On January 1, Year 1, Present Inc. purchased 80 percent of the outstanding voting shares of Sunrise Co. for $3,000,000. On that date, Sunrise’s shareholders’ equity consisted of retained earnings of $1,500,000 and common shares of $1,000,000. Sunrise’s identifiable assets and liabilities had fair values that were equal to their carrying values on January 1, Year 1. Account balances for selected accounts for the Year 5 financial statements were as follows: Present Sunrise Property, plant, and equipment (net) $ 2,100,000...
Additional Problem 4 On January 1, 2017, Metlock Corporation purchased 18% of the outstanding voting shares...
Additional Problem 4 On January 1, 2017, Metlock Corporation purchased 18% of the outstanding voting shares in WLT Corporation for $1,240,000. At the time of purchase, WLT’s net assets were undervalued by $97,600 and had a remaining useful life of 12 years. Both companies had a December 31 year-end. At the end of 2017, WLT reported a net income of $336,000. Also on December 31, 2017, the fair value of the investment in WLT shares was $1,364,000. On January 10,...
On January 1, 2013, Plano Company acquired 8 percent (25,600 shares) of the outstanding voting shares...
On January 1, 2013, Plano Company acquired 8 percent (25,600 shares) of the outstanding voting shares of the Sumter Company for $460,800, an amount equal to Sumter’s underlying book and fair value. Sumter declares and pays a cash dividend to its stockholders each year of $160,000 on September 15. Sumter reported net income of $389,000 in 2013, $461,200 in 2014, $510,000 in 2015, and $485,600 in 2016. Each income figure can be assumed to have been earned evenly throughout its...
On January 1, 2013, Plano Company acquired 8 percent (16,000 shares) of the outstanding voting shares...
On January 1, 2013, Plano Company acquired 8 percent (16,000 shares) of the outstanding voting shares of the Sumter Company for $192,000, an amount equal to Sumter’s underlying book and fair value. Sumter declares and pays a cash dividend to its stockholders each year of $100,000 on September 15. Sumter reported net income of $300,000 in 2013, $360,000 in 2014, $400,000 in 2015, and $380,000 in 2016. Each income figure can be assumed to have been earned evenly throughout its...
On January 1, 2013, Plano Company acquired 8 percent (16,000 shares) of the outstanding voting shares...
On January 1, 2013, Plano Company acquired 8 percent (16,000 shares) of the outstanding voting shares of the Sumter Company for $192,000, an amount equal to Sumter’s underlying book and fair value. Sumter declares and pays a cash dividend to its stockholders each year of $100,000 on September 15. Sumter reported net income of $300,000 in 2013, $360,000 in 2014, $400,000 in 2015, and $380,000 in 2016. Each income figure can be assumed to have been earned evenly throughout its...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT