50.1K

Verified Solution

Link Copied!

On January 1, 2020, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,330,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $890,000, retained earnings of $440,000, and a noncontrolling interest fair value of $570,000. Corgan attributed the excess of fair value over Smashing's book value to various covenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing.

During the next two years, Smashing reported the following:

Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2020 and 2021, 30 percent of the current year purchases remain in Smashing's inventory.

What are the correct values for these journal entries?

Net Income 2020 $340,000 2021 320,000 Dividends Declared $54,000 64,000 Inventory Purchases from Corgan $290,000 310,000 1 1 32,625 Equity in earnings of Smashing Cost of goods sold 3 32,625 2 2 890,000 744,625 Common stock - Smashing Retained earnings - Smashing Investment in Smashing Noncontrolling interest 1,144,238 490,388 3 3 541,500 Covenants Investment in Smashing Noncontrolling interest 379,050 162,450 4 4 169,715 Equity in earnings of Smashing Investment in Smashing > 169,715 X

Answer & Explanation Solved by verified expert

See Answer