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Roller Corporation purchased 100 percent ownership of Steam Company on January 1, 20X5, for $288,000. On...

Roller Corporation purchased 100 percent ownership of Steam Company on January 1, 20X5, for $288,000. On that date, the book value of Steam’s reported net assets was $211,000. The excess over book value paid is attributable to depreciable assets with a remaining useful life of 10 years. Net income and dividend payments of Steam in the following periods were

  Year Net Income Dividends
  20X5 $ 25,000 $ 6,000
  20X6 45,000 16,000
  20X7 25,000 37,000

Required:

a.

Prepare journal entries on Roller Corporation’s books relating to its investment in Steam Company for each of the three years, assuming it accounts for the investment using the cost method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b.

Prepare journal entries on Roller Corporation’s books relating to its investment in Steam Company for each of the three years, assuming it accounts for the investment using the equity-method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

*Record the purchase of Steam Company stock for 20X5.

*Record the dividend from Steam Company for 20X5.

*Record the equity-method income for 20X5.

*Record the amortization of differential value for 20X5.

*Record the dividend from Steam Company for 20X6.

*Record the equity-method income for 20X6.

*Record the amortization of the differential value for 20X6.

*Record the dividend from Steam Company for 20X7.

*Record the equity-method income for 20X7.

*Record the amortization of the differential value for 20X7.

Solutions

Expert Solution


(a).

Date

Account Titles & Explanation

Debit

Credit

2005

Investment in Steam Company Stock

$288000

      Cash

$288000

(For recording investment in Steam company)

Cash

$6000

      Dividend Income

$6000

(For recording receipt of dividend income)

2006

Cash

$16000

      Dividend Income

$16000

(For recording receipt of dividend income)

2007

Cash

$37000

      Dividend Income

$37000

(For recording receipt of dividend income)

(b).

Date

Account Titles & Explanation

Debit

Credit

2005

Investment in Steam Company Stock

$288000

      Cash

$288000

(For recording investment in Steam company)

Cash

$6000

      Investment in Steam Company Stock

$6000

(For recording receipt of dividend income)

Investment in Steam Company Stock

$25000

      Income from Steam Company

$25000

(For recording income from steam company)

Income from Steam Company ($77000 / 10)

$7700

     Investment in Steam Company Stock

$7700

(For recording amortization of differential value)

2006

Cash

$16000

      Investment in Steam Company Stock

$16000

(For recording receipt of dividend income)

Investment in Steam Company Stock

$45000

      Income from Steam Company

$45000

(For recording income from steam company)

Income from Steam Company ($77000 / 10)

$7700

     Investment in Steam Company Stock

$7700

(For recording amortization of differential value)

2007

Cash

$37000

      Investment in Steam Company Stock

$37000

(For recording receipt of dividend income)

Investment in Steam Company Stock

$25000

      Income from Steam Company

$25000

(For recording income from steam company)

Income from Steam Company ($77000 / 10)

$7700

     Investment in Steam Company Stock

$7700

(For recording amortization of differential value)

ekkarill92 answered 1 year ago
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