Hw.136. Large Ltd. purchased 75% of Small Company on January 1, Year 6, for $750,000, when the statement of financial position for Smallshowed common shares of $540,000 and retained earnings of $240,000. On that date, the inventory of Small was undervalued by$60,000, and a patent with an estimated remaining life of five years was overvalued by $86,000.Small reported the following subsequent to January 1, Year 6:Year 6Year 7Year 8Profit(Loss) Dividends$39,00024,00054,000$136,000(49,000)104,000A test for goodwill impairment on December 31, Year 8, indicated a loss of $20,700 should be reported for Year 8 on the consolidatedincome statement. Large uses the cost method to account for its investment in Small and reported the following for Year 8 for itsseparate-entity statement of changes in equity:Retained earnings, beginningProfitDividendsRetained earnings, end$ 640,000340,000(56,000)$924,000Required:(a) Prepare the cost method journal entries of Large for each year. (If no entry is required for a transaction/event, select "No journalentry required" in the first account field.)(b) Compute the following on the consolidated financial statements for the year ended December 31, Year 8: (Omit $ sign in yourresponse.)(i) GoodwillGoodwill(ii) Non-controlling interest on the statement of financial positionNon-controlling interest $(iii) Retained earnings, beginning of yearRetained earnings, beginning of year(iv) Profit attributable to Large's shareholdersProfit attributable to Large's shareholders(v) Profit attributable to non-controlling interestProfit attributable to non-controlling interest(c) Now assume that Large is a private entity, uses ASPE, and chooses to use the equity method to report its investment in Small.(i) Prepare Large's journal entries for each year related to its investment in Small. (If no entry is required for a transaction/event,select "No journal entry required" in the first account field.) View transaction listJournal entry worksheet12Record the purchase of 75% of Small Company.DateYear 63Note: Enter debits before credits.Record entryGeneral JournalClear entryDebitCreditView general journal>

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Large Ltd. purchased 75% of Small Company on January 1, Year 6, for $750,000, when the statement of financial position for Small showed common shares of $540,000 and retained earnings of $240,000. On that date, the inventory of Small was undervalued by $60,000, and a patent with an estimated remaining life of five years was overvalued by $86,000. Small reported the following subsequent to January 1, Year 6: Year 6 Year 7 Year 8 Profit (Loss) Dividends $39,000 $136,000 (49,000) 104,000 A test for goodwill impairment on December 31, Year 8, indicated a loss of $20,700 should be reported for Year 8 on the consolidated income statement. Large uses the cost method to account for its investment in Small and reported the following for Year 8 for its separate-entity statement of changes in equity: Retained earnings, beginning Profit Dividends Retained earnings, end Goodwill $ 24,000 54,000 Required: (a) Prepare the cost method journal entries of Large for each year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) $ 640,000 340,000 (56,000) $924,000 (b) Compute the following on the consolidated financial statements for the year ended December 31, Year 8: (Omit $ sign in your response.) (i) Goodwill (ii) Non-controlling interest on the statement of financial position Non-controlling interest $ (iii) Retained earnings, beginning of year Retained earnings, beginning of year (iv) Profit attributable to Large's shareholders Profit attributable to Large's shareholders (v) Profit attributable to non-controlling interest Profit attributable to non-controlling interest (c) Now assume that Large is a private entity, uses ASPE, and chooses to use the equity method to report its investment in Small. (i) Prepare Large's journal entries for each year related to its investment in Small. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q