On January 1, 2018, Puget Sound Corporation bought 100% of the stock of Spokane
ID: 2548165 • Letter: O
Question
On January 1, 2018, Puget Sound Corporation bought 100% of the stock of Spokane Corporation. Puget Sound purchased it by issuing 500,000 additional shares of their $5 par value stock, which at the time was worth $20 per share. Puget Sound also paid for it in part by paying $300,000.
Other pertinent information:
Stockholder’s equity of Spokane at acquisition was $7,200,000.
Fair value of previously unrecorded identifiable intangibles (5-year life): $2,000,000.
Goodwill and identifiable intangibles are not impaired in 2018
Spokane’s net income in 2018: $3,000,000.
Spokane’s dividends paid in 2018: $1,000,000.
On December 31, 2018, Puget Sound owed Spokane $16,000, and Spokane owed Puget Sound $22,000.
Puget Sound's CEO fired Spokane's CEO on June 1, 2018.
Spokane introduced a new product on August 31, 2018.
Puget Sound uses the complete equity method to record its investment in Spokane.
By December 31, 2018, the fair market value of identifiable intangibles on Spokane’s books was worth $3,000,000.
The following is the trial balance data for Puget Sound and Spokane on December 31, 2018:
Puget Sound Spokane
Cash $ 290,000,000 $ 10,000,00
Accounts Receivable 410,000,000 30,000,000
Inventory 250,000,000 5,000,000
Land 300,000,000 7,000,000
Buildings & Equipment-Net 1,100,000,000 33,000,000
Identifiable Intangible Assets 100,000 0
Investment in Spokane 11,900,000 -----------
Cost of Goods Sold 750,000,000 22,000,000
Depreciation Expense 90,000,000 40,000,000
Amortization Expense 10,000,000 0
Other Expenses 20,200,000 1,000,000
Dividends Declared 100,000,000 1,000,000
Accounts Payable 400,000,000 10,000,000
Long-Term Liabilities 899,600,000 65,800,000
Common Stock 800,000,000 7,000,000
Additional Paid in Capital 70,000,000 150,000
Retained Earnings, Jan. 1, 2018 250,000,000 50,000
Sales 910,000,000 66,000,000
Equity in Income from Spokane 2,600,000 ----------
$0 $0
Required:
Prepare the journal entries for Puget Sound regarding its investment in Spokane during 2018.
Explanation / Answer
Journal entries for Puget Sound regarding its investment in Spokane during 2018 General Journal Debit Credit Investment in Spokane 10300000 Common Stock 2500000 Additional Paid in Capital 7500000 Cash 300000 (To record investment in Spokane) Dividend received $1,000,000 Investment in Spokane $1,000,000 (To record dividend received from Spokane) Amortization expenses $400,000 Equity in Income of Spokane $400,000 (To record amortization of intangibles over 5years) Investment in Spokane 3000000 Equity in Income of Spokane $3,000,000 (To record income from subsidiary) Common stock $7,200,000 Intangibles $3,000,000 Goodwill $100,000 Investment in Spokane $10,300,000 (To eliminate Common stock of Spokane and record intangibles and Goodwill in Puget Sound and to eliminate Investment in Spokane on consolidation) Accounts payable $6,000 Accounts receivable $6,000 (To eliminate the net amount Spokane owed to Puget)
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