Comprehensive Problem: Differential Apportionment

Week 3 – Assignment Comprehensive Problem: Differential Apportionment

Mortar Corporation acquired 80 percent ownership of Granite Company on January 1, 20×7, for $173,000. At that date, the fair value of the non-controlling interest was $43,250. The trial balances for two companies on December 31, 20×7, included the following amounts:

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Mortar corporation                                             Granite Company

Item                                                                      Debit                 Credit                                        Debit                 Credit

Cash                                                                  38,000                                                                 25,000

Accounts Receivable                                     50,000                                                                  55,000

Inventory                                                           240,000                                                              100,000

Land                                                                  80,000                                                                  20,000

buildings & Equipment                                 500,000                                                               150,000

Investment in Granite Company Stock      202,000

cost of Goods Sold                                         500,000                                                                250,000

Depreciation Expense                                  25,000                                                                   15,000

other expenses                                              75,000                                                                    75,000

Dividends declared                                         50,000                                                                   20,000

Accumulated Depreciation                                                        155,000                                                              75,000

Accounts Payable                                                                         70,000                                                               35,000

Mortgages Payable                                                                    200,000                                                               50,000

Common Stock                                                                            300,000                                                               50,000

Retained Earnings                                                                      290,000                                                             100,000

Sales                                                                                              700,000                                                              400,000

Income for Subsidiary                                                                 45,000

 1,760,000             1,760,000                                   710,000               710,000

Additional information

1. On January 1, 20×7, Granite reported net assets with a book value of $150,000 and a fair value of $191,250.

2. Granite’s depreciable assets had an estimated economic life of 11 years on the date of combination. The difference between fair value and book value of Granite’s net assets is related entirely to buildings and equipment.

3. Mortar used the equity method in accounting for its investment in Granite.

4. Detailed analysis of receivables and payables showed that Granite owed Mortar ,000 on December 31,20×7.

5. Assume that any goodwill impairment should be recorded as an adjustment in Mortar’s equity method accounts along with the amortization of other differential components.

Required 

Give all journal entries recorded by Mortar with regard to its investment in Granite during 20×7. Give all eliminating entries needed to prepare a full set of consolidated financial statements for 20×7. Prepare a three- part consolidation worksheet as of December 31,20×7.

 

 

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