ASSIGNMENT
Master Corporation acquired 80 percent ownership of Stanley Wood Products Company on January 1, 20X1, for $160,000. On that date, the fair value of the non-controlling interest was $40,000, and Stanley reported retained earnings of $50,000 and had $100,000 of common stock outstanding. Master has used the equity method in accounting for its investment in Stanley.
Trial balance data for the two companies on December 31, 20X5, are as follows:
Additional Information:
1. On the date of combination, the fair value of Stanley's depreciable assets was $50,000 more than book value. The differential assigned to depreciable assets should be written off over the following 10-year period.
2. There was $10,000 of intercorporate receivables and payables at the end of 20X5.
Your Portfolio Project paper should be 8 to 10 pages in length, and address thoroughly Parts A, B and C below. Be sure to incorporate instructor feedback and suggestions into your final submission, in terms of any changes or additions to Parts A and B that you received during the course. Be sure to examine the Portfolio Project rubric to guide your project writing and presentation.
1. Give all journal entries that Master recorded during 20X5 related to its investment in Stanley.
2. Give all eliminating entries needed to prepare consolidated statements for 20X5.
3. Prepare a three-part worksheet as of December 31, 20X5. Include this in table format in the Word document. Following your worksheet, in two or three pages analyze the process, specifically addressing how the transactions impact the financial statements, and how an outside user of the financial statements would use the information provided.
1. Give all journal entries that Master recorded during 20X5 related to its investment in Stanley.
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Cash
|
8,000
|
|
|
Investment in Stanley Wood
|
|
8,000
|
|
(To Record Dividends from Stanley Wood)
|
|
|
|
Investment in Stanley Wood
|
24,000
|
|
|
Income From Stanley Wood
|
|
24,000
|
|
(To Record Income Under Equity Method)
|
|
|
|
Income From Stanley Wood
|
4,000
|
|
|
Investment in Stanley Wood
|
|
4,000
|
2. Give all eliminating entries needed to prepare consolidated statements for 20X5.
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Income from Subsidiary
|
20,000
|
|
|
Dividends Declared
|
|
8,000
|
|
Investment in SW Products Stock
|
|
12,000
|
|
(Eliminate Income from Subsidiary)
|
|
|
|
Income to Non-Controlling Interest
|
5,000
|
|
|
Dividends Declared
|
|
2,000
|
|
Non-Controling Interest
|
|
3,000
|
|
Common Stock - SW Products
|
100,000
|
|
|
Retained Earnings
|
90,000
|
|
|
Differential
|
30,000
|
|
|
Investment in SW Products Stock
|
|
176,000
|
|
Non-Controling Interest
|
|
44,000
|
|
Building and Equipment
|
50,000
|
|
|
Accumulated Depreciation
|
|
20,000
|
|
Differential
|
|
30,000
|
|
(Assign Beginning Differential)
|
|
|
|
Depreciation Expense
|
5,000
|
|
|
Accumulated Depreciation
|
|
5,000
|
|
(Amortise Differential)
|
|
|
|
Accounts Payable
|
10,000
|
|
|
Cash and Receivables
|
|
10,000
|
|
(Eliminate Inter-Corporate Recivables and Payables)
|
|
|
3. Prepare a three-part worksheet as of December 31, 20X5.
|
Master
|
Stanley Wood
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Elimination Entries
|
|
|
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Corporation
|
Company
|
Debit
|
Credit
|
Consolidated
|
|
Income Statement
|
|
|
|
|
|
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Sales
|
200,000
|
100,000
|
|
|
300,000
|
|
Cost of Goods Sold
|
(120,000)
|
(50,000)
|
|
|
(170,000)
|
|
Depreciation Expense
|
(25,000)
|
(15,000)
|
5,000
|
|
(45,000)
|
|
Inventory Losses
|
(15,000)
|
(5,000)
|
|
|
(20,000)
|
|
Income from Stanley Wood
|
20,000
|
|
24,000
|
4,000
|
-
|
|
Non-Controlling Interest in Net Income
|
|
|
6,000
|
1,000
|
(5,000)
|
|
Controlling Interest in Net Income
|
60,000
|
30,000
|
35,000
|
5,000
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Retained Earnings
|
|
|
|
|
|
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Beginning Balance
|
314,000
|
90,000
|
90,000
|
|
314,000
|
|
Net Income
|
60,000
|
30,000
|
35,000
|
5,000
|
60,000
|
|
Dividend Declared
|
(30,000)
|
(10,000)
|
|
10,000
|
(30,000)
|
|
Ending Balance
|
344,000
|
110,000
|
125,000
|
15,000
|
344,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
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Cash and Receivables
|
81,000
|
65,000
|
|
10,000
|
136,000
|
|
Inventory
|
260,000
|
90,000
|
|
|
350,000
|
|
Land
|
80,000
|
80,000
|
|
|
160,000
|
|
Buildings and Equipment
|
500,000
|
150,000
|
50,000
|
|
700,000
|
|
Accumulated Depreciation
|
(205,000)
|
(105,000)
|
|
25,000
|
(335,000)
|
|
Investment in Stanley Wood
|
188,000
|
|
|
168,000
|
|
|
|
|
|
|
20,000
|
|
|
Total Assets
|
904,000
|
280,000
|
50,000
|
223,000
|
1,011,000
|
|
|
|
|
|
|
|
Accounts Payable
|
60,000
|
20,000
|
10,000
|
|
70,000
|
|
Notes Payable
|
200,000
|
50,000
|
|
|
250,000
|
|
Common Stock
|
300,000
|
100,000
|
100,000
|
|
300,000
|
|
Retained Earnings
|
344,000
|
110,000
|
125,000
|
15,000
|
344,000
|
|
Non-Controlling Interest
|
|
|
|
42,000
|
47,000
|
|
|
|
|
|
5,000
|
|
|
Total Liabilities & Equity
|
904,000
|
280,000
|
235,000
|
62,000
|
1,011,000
|