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(Solved) Exercise SA2-1 Equity income recording. Trailer Corporation purchases a 25% interest in Like...


Exercise SA2-1 Equity income recording. Trailer  Corporation  purchases  a  25%  interest in Like Company for $110,000 on January 1, 20X7. The following determination and distribu- tion of excess schedule is prepared:   Price paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less interest acquired: Common stock ($10 par). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $200,000   $110,000 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000     Total stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000 x       25%          75,000 Excess of cost over book value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $  35,000 Less excess attributable to equipment, 25% x $40,000 (10-year life)          10,000 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $  25,000     Like Company earns income of $20,000 in 20X7 and $24,000 in 20X8. Like Company declares a 25-cent per-share cash dividend on December 22, 20X8, payable January 12, 20X9, to stockholders of record on December 30, 20X8. During 20X8, Like sells merchandise costing $10,000 to Trailer for $15,000. 20% of the merchandise is still in Trailer’s ending inventory on December 31, 20X8. Prepare the equity adjustment required by APB Opinion No. 18 on Trailer’s books on December 31, 20X7, and December 31, 20X8, to account for its investment in Like Company. Assume Trailer Corporation makes no adjustment except at the end of each calendar year. Ignore income tax considerations.

 


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