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ACC 407 Cost Accounting Exercises

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RUNNING HEAD: Journal Entries 1
Week 3 Homework
ACC407 Cost Accounting II
May 21, 2018
P5-39 Comprehensive Problem: Majority-Owned Subsidiary
Master Corporation acquired 80 percent ownership of Stanley Wood Products Company on January 1,
20X1, for $160,000. On that date, the fair value of the noncontrolling interest was $40,000, and Stanley
reported retained earnings of $50,000 and had $100,000 of common stock outstanding. Master has used
the equity method in accounting for its investment in Stanley.
Trial balance data for the two companies on December 31, 20X5, are as follows:
Master
Corporation
Stanley Wood
Products Company
Item
Debit
Credit
Credit
Cash & Receivables
$ 81,000
Inventory
260,000
Land
80,000
Building & Equipment
500,000
Investment in Stanley Wood Products Stock
188,000
Cost of Goods Sold
120,000
Depreciation Expense
25,000
Inventory Losses
15,000
Dividends Declared
30,000
Accumulated Depreciation
$ 205,000
$ 105,000
Accounts Payable
60,000
20,000
Notes Payable
200,000
50,000
Common Stock
300,000
100.000
Retained Earnings
314,000
90,000
Sales
200,.000
100,000
Income from Subsidiary
20,000
$ 1,299,000
$
1,299,000
$ 465,000
Additional Information
1. On the date of combination, the fair value of Stanley’s depreciable assets was $50,000 more than
book value. The accumulated depreciation on these assets was $10,000 on the acquisition date. The
differential assigned to depreciable assets should be written off over the following 10-year period.

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Journal Entries 2
2. There was $10,000 of intercorporate receivables and payables at the end of 20X5.
Required
a. Give all journal entries that Master recorded during 20X5 related to its investment in Stanley.
Master Corporation
Journal Entries
Year Ending 20X5
Debit
Credit
(1)
Cash
8,000
Investment in Stanley Wood Products
Company
8,000
(2)
Investment in Stanley in Stanley Wood
Products Company
24,000
Income from Stanley Wood Products
Company
24,000
(3)
Income from Stanley Wood Products
Company
4,000
Investment in Stanley Wood Products
Company
4,000
(1) (dividends declared x ownership percentage) $10,000 x .80 = $8,000
(2) (dividends declared x ownership percentage) $30,000 x .80 = $24,000
(3) (differential / years x ownership percentage) ($50,000 / 10,000yrs) x .80 = $4,000

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RUNNING HEAD: Journal Entries 1 Week 3 – Homework ACC407 Cost Accounting II May 21, 2018 P5-39 Comprehensive Problem: Majority-Owned Subsidiary Master Corporation acquired 80 percent ownership of Stanley Wood Products Company on January 1, 20X1, for $160,000. On that date, the fair value of the noncontrolling interest was $40,000, and Stanley reported retained earnings of $50,000 and had $100,000 of common stock outstanding. Master has used the equity method in accounting for its investment in Stanley. Trial balance data for the two companies on December 31, 20X5, are as follows: Item Cash & Receivables $ Master Corporation Debit 81,000 Inventory Land Building & Equipment 260,000 80,000 500,000 Investment in Stanley Wood Products Stock Cost of Goods Sold Depreciation Expense Inventory Losses Dividends Declared Accumulated Depreciation Accounts Payable Notes Payable Common Stock Retained Earnings Sales Income from Subsidiary 188,000 120,000 25,000 15,000 30,000 $ 1,299,000 Credit Stanley Wood Products Company Debit Credit $ 65,000 90,000 80,000 150,00 0 50,000 15,000 5,000 10,000 $ 205,000 60,000 200,000 300,000 314,000 200,.000 20,000 $ 1,299,000 $ 105,000 20,000 50,000 100.000 90,000 100,000 $ 465,00 0 $ 465,000 Additional Information 1. On the date of combination, the fair value of Stanley’s depreciable assets was $50,000 more than book value. The accumulated depreciation on these assets was $10,000 on the acquisition date. The differential assigned to ...
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