On July 1, 2021, Clearwater Inc. purchased 7.200 shares of the outstanding common stock of Mountain Corporation at a cost of $192,000. Mountain had 24,000 shares of outstanding common stock. The total book value and total fair value of Mountain's individual net assets on July 1, 2021, are both $640,000. The total fair value of the 24,000 shares of Mountain's common stock on December 31, 2021, is $730,000. Both companies have a January through December fiscal year. The following data pertains to Mountain Corporation during 2021 Dividends declared and paid, January 1-June 30 Dividends declared and paid, July 1-December 311 Net income, January 1-June 30 Net income, July 1-December 31 Required: $11,400 $11,400 $13,400 $17,400 1. Prepare the necessary entries for 2021 under the equity method (other than for the purchase). 2. Prepare any necessary entries for 2021 (other than for the purchase) that would be required if the securities were accounted for under the fair value through net income method.

On July 1, 2021, Clearwater Inc. purchased 7.200 shares of the outstanding common stock of Mountain Corporation at a cost of $192,000. Mountain had 24,000 shares of outstanding common stock. The total book value and total fair value of Mountain's individual net assets on July 1, 2021, are both $640,000. The total fair value of the 24,000 shares of Mountain's common stock on December 31, 2021, is $730,000. Both companies have a January through December fiscal year. The following data pertains to Mountain Corporation during 2021 Dividends declared and paid, January 1-June 30 Dividends declared and paid, July 1-December 311 Net income, January 1-June 30 Net income, July 1-December 31 Required: $11,400 $11,400 $13,400 $17,400 1. Prepare the necessary entries for 2021 under the equity method (other than for the purchase). 2. Prepare any necessary entries for 2021 (other than for the purchase) that would be required if the securities were accounted for under the fair value through net income method.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Required: Prepare All Elimination Entries on Dec.31, 2021 and on Dec.31, 2022

A: Elimination entries are accounting adjustments made in consolidation to remove intercompany…

Q: On January 1, 2020, Hockey Unlimited Inc. purchased 2,500 of the 10,000 outstanding common shares of…

A: Depreciation -Depreciation is a tool used by businesses to spread out the recognition of their…

Q: On January 1, 2021, Alamar Corporation acquired a 41 percent interest in Burks, Inc., for $233,000.…

A: Given: % investment is 41% Amount = $233,000 Net income = $82,000 Cash dividend paid = $28,000

Q: Stellar Co. acquired 25% of the 500,000 shares of outstanding common stock of Overload Inc. on…

A: Securities available for sale are those debt or equity securities investments made by the company…

Q: lint Inc. acquired 20% of the outstanding common shares of Gre or 51,400 shares and is equal to 20%…

A: These are the accounting transactions that are having a monetary impact on the financial statement…

Q: On January 1, 2024, Alamar Corporation acquired a 35 percent interest in Burks, Incorporated, for…

A: When the ownership percentage is between 20% to 50%, then equity method of accounting for…

Q: On January 01, 2021, Batman Corp. acquired 75% of the outstanding stock of Superman Co. for…

A: It refers to a situation where the carrying value of an asset exceeds its recoverable amount.…

Q: a. Prepare worksheet entries to consolidate these two companies as of December 31, 2021. b. Compute…

A: The equity method is a method used by a company to record the profits earned by its investment in…

Q: Amie, Inc., has 153,000 shares of $2 par value stock outstanding. Prairie Corporation acquired…

A: The cost of investment includes the cash transferred, Fair value of assets transferred, fair value…

Q: On January 1, 2020, Pail Corporation acquired 75 percent of Sand Company's common stock for $525,000…

A: The question is related to Consolidated Financial Statements.The details of dividend paid by Parent…

Q: On December 31, 2019, Purple Company purchased 80% of the common stock of Sage Company for…

A: Hello. Since your question has multiple sub-parts, we will solve the first three sub-parts for you.…

Q: Haynes, Inc., obtained 100 percent of Turner Company’s common stock on January 1, 2020, by issuing…

A: Dividends seem to be corporate profits that have been transferred to the shareholders. Dividend…

Q: On January 1, 2021, Marshall Company acquired 100 percent of the outstanding common stock of Tucker…

A: Consolidation Statement- Consolidated financial statement refers to the financial statement of an…

Q: On January 1, 2021, Sledge had common stock of $190,000 and retained earnings of $330,000. During…

A: The equity method is a method used by a company to record the profits earned by its investment in…

Q: On January 2, 2020, P Corporation purchased 80% of the outstanding shares of S Company for…

A: In Consolidated Statement of profit and loss, there should be an additional depreciation for the…

Q: On January 1, 2021, Marshall Company acquired 100 percent of the outstanding common stock of Tucker…

A: The question is based on the concept of Financial Accounting.

Q: On January 1, 2021, ABC purchased 90% of the outstanding shares of JKL Company at a cost of…

A: On January 1, 2021, ABC purchased 90% of the outstanding shares of JKL Company at a cost of…

Q: On January 3, 2023, Trycker, Incorporated acquired 40% of the outstanding common stock of Inkblot…

A: Dividends received relate to payments made by pots to their shareholders out of their gains or…

Q: On January 1, 2021, Sledge had common stock of $280,000 and retained earnings of $420,000. During…

A: Journal entry is the process of documenting commercial transactions for the first time in the books…

Q: Percy has properly applied the equity method to the investment in Sledge. Prepare worksheet entries…

A: Non Controlling Interest - It is type of interest in the company where shareholder owns less than…

Q: On August 1, 2020, Coronado Corporation purchased 20% of the outstanding voting shares in WLT…

A: Investment in Associates and Joint venture and Subsidiary Equity Accounting method - This method is…

Q: On April 1, 2024, BigBen Company acquired 35% of the shares of LittleTick, Incorporated BigBen paid…

A: net income refers to an amount that is being earned by the investors over the amount of investment…

Q: On January 1, 2021, Alamar Corporation acquired a 36 percent interest in Burks, Inc., for $198,000.…

A: As Mentioned question number 03 to answer so we are only answering that.

Q: On January 1, 2024, Alamar Corporation acquired a 40 percent interest in Burks, Incorporated, for…

A: The objective of the question is to prepare the journal entries for Alamar Corporation for the year…

Question

On July 1, 2021, Clearwater Inc. purchased 7,200 shares of the outstanding common stock of Mountain Corporation at a cost of
$192,000. Mountain had 24,000 shares of outstanding common stock. The total book value and total fair value of Mountain's Individual
net assets on July 1, 2021, are both $640,000. The total fair value of the 24,000 shares of Mountain's common stock on December 31,
2021, is $730,000. Both companies have a January through December fiscal year. The following data pertains to Mountain Corporation
during 2021:
Dividends declared and paid, January 1-June 30
Dividends declared and paid, July 1-December 31
$11,400
$11,400
$13,400
$17,400
Net income, January 1-June 30
Net income, July 1-December 311
Required:
1. Prepare the necessary entries for 2021 under the equity method (other than for the purchase).
2. Prepare any necessary entries for 2021 (other than for the purchase) that would be required if the securities were accounted for
under the fair value through net income method.
Complete this question by entering your answers in the tabs below.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction to journal entries:

VIEW

Step 2: Working note- Determining the unrealized gain/(loss) at the end of the year:

VIEW

Step 3: Requirement 1- Preparing the required journal entries (other than purchase) using equity method:

VIEW

Step 4: Requirement 2- Preparing the required journal entries (other than purchase) using fair value method:

VIEW

Solution

VIEW

Step by step

Solved in 5 steps with 9 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

On January 1, 2021, Sledge had common stock of $340,000 and retained earnings of $480,000. During that year, Sledge reported sales of $350,000, cost of goods sold of $180,000, and operating expenses of $62,000. On January 1, 2019, Percy, Inc., acquired 70 percent of Sledge's outstanding voting stock. At that date, $82,000 of the acquisition-date fair value was assigned to unrecorded contracts (with a 20-year life) and $42,000 to an undervalued building (with a 10-year remaining life). In 2020, Sledge sold inventory costing $24,050 to Percy for $37,000. Of this merchandise, Percy continued to hold $6,000 at year- end. During 2021, Sledge transferred inventory costing $23,100 to Percy for $42,000. Percy still held half of these items at year-end. On January 1, 2020, Percy sold equipment to Sledge for $23,000. This asset originally cost $38,000 but had a January 1, 2020, book value of $13,400. At the time of transfer, the equipment's remaining life was estimated to be five years. Percy…
On January 1, 2021, Sledge had common stock of $240,000 and retained earnings of $380,000. During that year, Sledge reported sales of $250,000, cost of goods sold of $130,000, and operating expenses of $52,000. On January 1, 2019, Percy, Inc., acquired 90 percent of Sledge's outstanding voting stock. At that date, $72,000 of the acquisition-date fair value was assigned to unrecorded contracts (with a 20-year life) and $32,000 to an undervalued building (with a 10-year remaining life). In 2020, Sledge sold inventory costing $17,550 to Percy for $27,000. Of this merchandise, Percy continued to hold $6,000 at year-end. During 2021, Sledge transferred inventory costing $19,200 to Percy for $32,000. Percy still held half of these items at year-end. On January 1, 2020, Percy sold equipment to Sledge for $18,000. This asset originally cost $28,000 but had a January 1, 2020, book value of $11,400. At the time of transfer, the equipment's remaining life was estimated to be five years. Percy has…
On January 1, 2021, Alamar Corporation acquired a 36 percent interest in Burks, Inc., for $198,000. On that date, Burks’s balance sheet disclosed net assets with both a fair and book value of $353,000. During 2021, Burks reported net income of $84,000 and declared and paid cash dividends of $24,000. Alamar sold inventory costing $27,000 to Burks during 2021 for $35,000. Burks used all of this merchandise in its operations during 2021. Prepare all of Alamar’s 2021 journal entries to apply the equity method to this investment. 4. Record the collection of dividend from investee.
On January 1, 2021, Pepita Corporation purchased 25% of the outstanding voting shares of Pablito Supplies common stock for $210,000 cash. On that date, Pablito's book value and fair value were both $840,000. The equity method is deemed appropriate for this investment. Pablito's net income reported on December 31, 2021, was $100,000. During 2021, Pablito also paid cash dividends in the amount of $30,000. Required: Prepare the journal entries necessary to record the above information on Pepita Corporation's books during 2021.
On January 3, 2023, Sheppard Corporation purchased 15% of Meredith Corporation's common stock for $62,000. Meredith's net income for the years ended December 31, 2023 and 2024 were $18,000 and $56,000 respectively. Meredith declared no dividends during 2023; however, during 2024, the company declared a $70,000 dividend. On December 31, 2023, the fair value of Meredith's stock that Sheppard Corporation owned had increased to $73,000; in 2024, it increased again to $79,000. What will be the carrying value of the investment at the end of December 31, 2024? Group of answer choices $79,000 $135,000 $73,000 $62,000
BuyCo, Inc., holds 20 percent of the outstanding shares of Marqueen Company and appropriately applies the equity method of accounting. Excess cost amortization (related to a patent) associated with this investment amounts to $11,900 per year. For 2020, Marqueen reported earnings of $117,000 and declares cash dividends of $34,000. During that year, Marqueen acquired inventory for $48,000, which it then sold to BuyCo for $80,000. At the end of 2020, BuyCo continued to hold merchandise with a transfer price of $33,000. What Equity in Investee Income should BuyCo report for 2020? How will the intra-entity transfer affect BuyCo’s reporting in 2021? If BuyCo had sold the inventory to Marqueen, would the answers to (a) and (b) have changed?
On July 1, 2024, Clearwater Incorporated purchased 7,200 shares of the outstanding common stock of Mountain Corporation at a cost of $152,000. Mountain had 36,000 shares of outstanding common stock. The total book value and total fair value of Mountain's individual net assets on July 1, 2024, are both $760,000. The total fair value of the 36,000 shares of Mountain's common stock on December 31, 2024, is $810,000. Both companies have a January through December fiscal year. The following data pertains to Mountain Corporation during 2024: Dividends declared and paid, January 1-June 30 Dividends declared and paid, July 1-December 31 Net income, January 1-June 30 Net income, July 1-December 31 $ 12,600 $ 12,600 $ 14,600 $ 18,600 Required: 1. Prepare the necessary entries for 2024 under the equity method (other than for the purchase). 2. Prepare any necessary entries for 2024 (other than for the purchase) that would be required if the securities were accounted for under the fair value…
Pronghorn Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2020. The purchase price was $1,243,200 for 51,800 shares. Kulikowski Inc. declared and paid an $0.75 per share cash dividend on June 30 and on December 31, 2021. Kulikowski reported net income of $786,000 for 2021. The fair value of Kulikowski's stock was $27 per share at December 31, 2021.
Bramble Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2020. The purchase price was $ 1,294,800 for 49,800 shares. Kulikowski Inc. declared and paid an $ 0.75 per share cash dividend on June 30 and on December 31, 2021. Kulikowski reported net income of $ 764,000 for 2021. The fair value of Kulikowski’s stock was $ 29 per share at December 31, 2021. (a) Prepare the journal entries for Bramble Inc. for 2020 and 2021, assuming that Bramble cannot exercise significant influence over Kulikowski. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit (To record dividend.) (To record…
Crake Corporation paid $50,000 for a 10% interest in Lagoon Corp. on January 1, 2018, when Lagoon’s stockholders’ equity consisted of $400,000 of $10 par value common stock and $100,000 retained earnings. On December 31, 2019, Crake paid $96,000 for an additional 20% interest in Lagoon Corp. Both of Crake’s investments were made when Lagoon’s book values equaled their fair values. Crake Corporation determines that cumulative dividends for 2019exceed its cumulative share of income by $200, and the 2018 investment in Lagoon Corp fair value increased to $55,000 On December 31, 2019. Lagoon’s net income and dividends for 2018 and 2019 were as follows: 2018 2019 Net income $30,000 $70,000 Dividends $10,000 $20,000 Required: 1. Prepare journal entries for Crake Corporation to account for its investment in Lagoon Corporation for 2018 and 2019. 2.…
On January 1, 2021, Sledge had common stock of $210,000 and retained earnings of $350,000. During that year, Sledge reported sales of $220,000, cost of goods sold of $115,000, and operating expenses of $49,000. On January 1, 2019, Percy, Inc., acquired 80 percent of Sledge's outstanding voting stock. At that date, $69,000 of the acquisition-date fair value was assigned to unrecorded contracts (with a 20-year life) and $29,000 to an undervalued building (with a 10-year remaining life). In 2020, Sledge sold inventory costing $13,200 to Percy for $24,000. Of this merchandise, Percy continued to hold $9,000 at year-end. During 2021, Sledge transferred inventory costing $15,950 to Percy for $29,000. Percy still held half of these items at year-end. On January 1, 2020, Percy sold equipment to Sledge for $16,500. This asset originally cost $25,000 but had a January 1, 2020, book value of $10,800. At the time of transfer, the equipment's remaining life was estimated to be five years.…
On January 1, 2021, Alamar Corporation acquired a 42 percent interest in Burks, Inc., for $185,000. On that date, Burks’s balance sheet disclosed net assets with both a fair and book value of $337,000. During 2021, Burks reported net income of $84,000 and declared and paid cash dividends of $24,000. Alamar sold inventory costing $29,000 to Burks during 2021 for $41,000. Burks used all of this merchandise in its operations during 2021. Prepare all of Alamar’s 2021 journal entries to apply the equity method to this investment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)