During review of the adjusting entries to be recorded on December 31, 20X8, Gran
ID: 2484165 • Letter: D
Question
During review of the adjusting entries to be recorded on December 31, 20X8, Grand Corporation discovered that it had inappropriately been using the cost method in accounting for its investment in Case Products Corporation. Grand purchased 100 percent ownership of Case Products on January 1, 20X6, for $62,000, at which time Case Products reported retained earnings of $12,000 and capital stock outstanding of $27,000. The differential was attributable to patents with a life of four years. Income and dividends of Case Products were:
Prepare the correcting entry required on December 31, 20X8, to properly report the investment under the equity method, assuming the books have not been closed. Case Products' dividends were declared in early November and paid in early December each year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
During review of the adjusting entries to be recorded on December 31, 20X8, Grand Corporation discovered that it had inappropriately been using the cost method in accounting for its investment in Case Products Corporation. Grand purchased 100 percent ownership of Case Products on January 1, 20X6, for $62,000, at which time Case Products reported retained earnings of $12,000 and capital stock outstanding of $27,000. The differential was attributable to patents with a life of four years. Income and dividends of Case Products were:
Explanation / Answer
Purchase price 62000 100% Dr Cr CP retained Earnings 12000 Book Value of CP 39000 Investment in CP 62000 Outstanding stock 27000 Patent 23000 Cash 62000 Total 39000 Life of4 years Equity in CP Income Amortization 5750 per year Investmment in CP 53750 Equity in CP Income 53750 (Adjusting Entry) Year Net Income Less Amortization Remaining Dividends Increase in Investment in CP 20X6 24,000 5,750 18,250 7,000 11,250 20X7 32,000 5,750 26,250 9,000 17,250 20X8 40,000 5,750 34,250 9,000 25,250 53,750
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