29 Jun Building and Equipment……
Question
11. The Paris Company purchased a 70% interest in Seine, Inc. for $278,000 on July 1, 20X1, when Seine had the following balance sheet:
Assets
$ 50,000
Accounts receivable………………………………
Inventory……………………………………….
110,000
Land……………………………………………
80,000
Building and Equipment……………………………
160,000
Total…………………………………………
$400,000
========
Liabilities and Equity
$160,000
Current liabilities………………………………
Common stock, $5 par……………………………..
50,000
Paid-in capital in excess of par…………………..
150,000
Retained earnings – 7/1…………………………..
100,000
Total…………………………………………
$400,000
========
The inventory is understated by $50,000 and is sold in the third quarter of 20X1. The land has a fair value of $100,000. The equipment has a fair value of $130,000 and a remaining life of 3 years. Any remaining excess is attributed to a patent with a 10-year life.
The following net incomes (earned evenly throughout the year) and dividends paid (on 12/1 each year) are reported by Seine:
……………………………
Net income
20X1
20X2
$150,000
$100,000
Dividends paid………………………..
10,000
10,000
Required:
a. Prepare a determination and distribution of excess schedule as of July 1, 20X1.
b. Prepare the 20X1 and 20X2 entries made by Paris to record the net income and dividends paid information on its books under the sophisticated equity method.
c. Prepare the 20X1 and 20X2 entries made by Paris to record the net income and dividends paid information on its books under the cost method.
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