Reference no: EM131219744
Harper acquires 40 percent of the outstanding voting stock of Kinman Company on January 1, 2014, for $334,900 in cash. The book value of Kinman’s net assets on that date was $625,000, although one of the company’s buildings, with a $70,800 carrying amount, was actually worth $135,550. This building had a 10-year remaining life. Kinman owned a royalty agreement with a 20-year remaining life that was undervalued by $147,500. Kinman sold inventory with an original cost of $77,700 to Harper during 2014 at a price of $111,000. Harper still held $18,750 (transfer price) of this amount in inventory as of December 31, 2014. These goods are to be sold to outside parties during 2015. Kinman reported a $51,800 net loss and a $26,600 other comprehensive loss for 2014, The company still manages to declare a $15,000 cash dividend during the year. During 2015, Kinman reported a $57,200 net income and declared cash dividend of $17,000. It made additional inventory sales of $120,000 to Harper during the period. The original cost of the merchandise was $75,000. All but 30 percent of this inventory had been resold to outside parties by the end of the 2015 fiscal year. Prepare all journal entries for Harper for 2014 and 2015 in connection with this investment. Assume that the equity method is applied.
JOURNAL ENTRIES REQUIRED:
1. Record the initial investment. 2. Record the dividend declaration. 3. Record the receipt of dividend. 4. Record the accrual of income and OCI from equity investee, 40% of reported balances. 5. Record the amortization relating to acquisition of Kinman. 6. Record the defer unrealized gross profit on intra-entity sale. 7. Record the dividend declaration. 8. Record the receipt of dividend. 9. Record the 40% accrual of income as earned by equity investee. 10. Record the amortization relating to acquisition of Kinman. 11. Record the recognized income deferred from 2014. 12. Record the deferred unrealized gross profit on intra-entity sale.
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