80.2K

Verified Solution

Link Copied!

Harper, Incorporated, acquires $40$ percent of the outstanding voting stock of Kinman Company on January $1,2023,$ for $$297,600$ in cash. The book value of Kinman's net assets on that date was $$580,000,$ although one of the company's buildings, with a $$75,000$ carrying amount, was actually worth $$127,500.$ This building had a $10-$year remaining life. Kinman owned a royalty agreement with a $20-$year remaining life that was undervalued by $$111,500.$

Kinman sold inventory with an original cost of $$75,600$ to Harper during $2023$ at a price of $$108,000.$ Harper still held $$17,400($transfer price$)$ of this amount in inventory as of December $31,2023.$ These goods are to be sold to outside parties during $2024.$

Kinman reported a $$43,400$ net loss and a $$22,900$ other comprehensive loss for $2023.$ The company still manages to declare and pay a $$24,000$ cash dividend during the year.

During $2024,$ Kinman reported a $$46,400$ net income and declared and paid a cash dividend of $$26,000.$ It made additional inventory sales of $$138,000$ to Harper during the period. The original cost of the merchandise was $$86,250.$ All but $30$ percent of this inventory had been resold to outside parties by the end of the $2024$ fiscal year.

Required:

Prepare all journal entries for Harper for $2023$ and $2024$ in connection with this investment. Assume that the equity method is applied.

Answer & Explanation Solved by verified expert

See Answer