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.)
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.)
Chapter8: Consolidated Tax Returns
Section: Chapter Questions
Problem 36P
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Transcribed Image Text: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
24,000
54,000
$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
$ 640,000
340,000
(56,000)
$924,000
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.)
(b) Compute the following on the consolidated financial statements for the year ended December 31, Year 8: (Omit $ sign in your
response.)
(i) Goodwill
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.)
Transcribed Image Text:View transaction list
Journal entry worksheet
1
2
Record the purchase of 75% of Small Company.
Date
Year 6
3
Note: Enter debits before credits.
Record entry
General Journal
Clear entry
Debit
Credit
View general journal
>
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