Problem - On January 1, 2013, Plano Company acquired 8 percent (20,000 shares) of the outstanding voting shares of the Sumter Company for $260,000, an amount equal to Sumter's underlying book and fair value.
On January 1, 2015, Plano purchased an additional 32 percent (80,000 shares) of Sumter for $1,285,750 in cash and began to use the equity method. This price represented a $58,050 payment in excess of the book value of Sumter's underlying net assets. Plano was willing to make this extra payment because of a recently developed patent held by Sumter with a 15-year remaining life. All other assets were considered appropriately valued on Sumter's books.
On July 1, 2016, Plano sold 10 percent (25,000 shares) of Sumter's outstanding shares for $650,000 in cash. Although it sold this interest, Plano maintained the ability to significantly influence Sumter's decision-making process. Assume that Plano uses a weighted average costing system.
Sumter declares and pays a cash dividend to its stockholders each year of $125,000 on September 15.
Sumter reported the following net incomes in 2013, 2014, 2015, and 2016:
Year Net Income
2013 $378,000
2014 445,000
2015 494,400
2016 469,700
Each income figure can be assumed to have been earned evenly throughout its respective year. In addition, the fair value of these shares is indeterminate.
Prepare the journal entries for Plano for the years of 2013 through 2016 relating to its investment in Sumter stock.
Record the entry to recognize the retrospective effect of change to equity method for 2013 and 2014?
Record the 25,000 shares of Sumter Company sold?
Record any amortization of revaluation increments or decrements for July 1, 2016 to December 31, 2016?