Journal entries to record investmentscrane mechanics

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Reference no: EM13356207

Journal entries to record investments.

Crane Mechanics acquired 75 percent of Downey Enterprises on March 31, 2005, for $3,645,000. Downey's book value at that date totaled $4,000,000. Appraisal values were greater than book values for identifiable assets in the following amounts: Inventory ($300,000) and Plant and Equipment ($700,000). The purchase differential for Inventory is to be amortized over five months and Plant and Equipment over ten years. For the remainder of 2005 Downey reports $635,000 of income and pays $100,000 in dividends. The following balances exist for Crane at December 31, 2005, and Downey

At March 31 and December 31, 2005.

 

Crain

Downey

 

12/31/2005

3/31/2005

12/31/2005

Cash

730,000

175,000

180,000

Inventory

1,950,000

260,000

340,000

Plant and Equipment

17,650,000

5,150,000

5,765,000

Accumulated Depreciation

(4,655,000)

(935,000)

(1,250,000)

Investment in Downey

3,886,875

 

 

Expenses

6,400,000

1,000,000

4,265,000

Dividends

1,275,000

150,000

250,000

Total Debits

27,236,875

5,800,000

9,550,000

Liabilities

3,550,000

650,000

500,000

Common Stock

350,000

100,000

100,000

Additional Paid-In Capital

2,650,000

850,000

850,000

Retained Earnings

9,720,000

2,800,000

2,800,000

Sales

10,650,000

1,400,000

5,300,000

Extraordinary Gain From Acquisition of Downey

105,000

 

 

Investment Income

211,875

 

 

Total Credits

27,236,875

5,800,000

9,550,000

Record the journal entries necessary on Crain's books for 2005 assuming that Crain uses the equity method to account for its investment in Downey.

Reference no: EM13356207

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