On January 1, 2013 Master Corporation acquired 80% of Stanley Wood Products Company's outstanding shares by paying $150,000 in cash. On that date, the fair value of the noncontrolling interest was $37,500 and Stanley reported retained earnings of $42,000 and had $98,000 of common stock outstanding. Master has used the equity method in accounting for investment in Stanley. Trial balance data for the two companies on December 31, 2017 are as follows: Master Stanley Debit Credit Debit Credit Cash & Receivables $ 85,000 $? $ 70,000 $? Inventory 270,000 92,000 Land 82,000 82,000 Buildings & Equipment 296,000 87,000 Investment in Stanley 185,720 Cost of Goods Sold 117,000 42,000 Depreciation Expense 20,000 10,000 Inventory Losses 10,000 6,000 Dividends Declared 42,000 19,600 Accounts Payable 55,000 19,000 Notes Payable 212,920 103,600 Common Stock 294,000 98,000 Retained Earnings 308,000 88,000 Sales 208,000 100,000 Income from Subsidiary 29,800 $ 1,107,720 $ 1,107,720 $ 408,600 $ 408,600 Additional Information 1. On the date of combination, the fair value of Stanley’s depreciable assets was $47,500 more than book value. The accumulated depreciation on these assets was $10,000 on the acquisition date. The differential assigned to depreciable assets should be written off over the following 10-year period. 2. There was $12,000 of intercorporate receivables and payables at the end of 2017. Required: a) Prepare all equity method journal entries that Master recorded during 2017 related to its investment in Stanley. b) Prepare the consolidation entries
1 Equity Method Entries on Master Corp. 's Books: No. Account titles Debit Credit a Investment in Stanley Wood Co. $ 33,600 Income from Stanley Wood Co. $ 33,600 (100000-42000-10000-6000)*0. 8 To Record Master Corp. 's 80% share of Stanley Wood Co.'s 20X5 income b Cash $ 15,680 Investment in Stanley Wood Co. $ 15,680 19600*0. 8 To Record Master Corp. 's 80% share of Stanley Wood Co.'s 20X5 dividend c Income from Stanley Wood Co. $ 3,800 Investment in Stanley Wood Co. $ 3,800 To Record amortization excess of acquistion price 4750*0. 8 2 a Common stock $ 98,000 Retained earnings $ 88,000 Income from Stanley Wood Co. $ 33,600 NCI in NI of Stanley wood co $ 8,400 Dividend $ 19,600 Investment in Stanley Wood Co. $ 166,720 NCI in NA of Stanley Wood Co $ 41,680 b Depreciation expense $ 4,750 Income from Stanley Wood Co. $ 3,800 NCI in NA of Stanley Wood Co $ 950 c Buiding and equipment $ 47,500 Accumulated depreciation $ 23,750 Investment in Stanley Wood Co. $ 19,000 NCI in NA of Stanley Wood Co $ 4,750 d Accounts payable $ 12,000 Cash and receivables $ 12,000 Workings: NCI Master = Common stock R/E Orignal book value 37,200 148800 = 98,000 88,000 add:net income 8,400 33600 = 42,000 less:dividends -3,920 -15680 = -19,600 ending book value 41,680 166,720 98,000 110,400 fair value 187500 Years Amortization Less:book value -140000 excess 47500 attributable to asset 47500 10 4750 goodwill 0
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