On 3 January 20X4, TA Company pur-chased 2,000 shares of the 10,000 outstanding shares of common stock

Question:

On 3 January 20X4, TA Company pur-chased 2,000 shares of the 10,000 outstanding shares of common stock of UK Corporation for $ 14,600 cash. TA has significant influence as a result of this acquisition. At that date, the statement of financial position of UK Corporation reflected the following:

• Nondepreciable assets, $ 50,000 (book value is the same as fair value)

• Depreciable assets (net), $ 30,000 (fair value, $ 33,000)

• Total liabilities, $ 20,000 (book value equals fair value)

• Shareholders’ equity, $ 60,000 Assume a 10- year remaining life (straight- line method) for the depreciable assets. Good-will is not impaired over the time period in question.

Required:

1. Give any required entries for TA’s books for each item (a) through (d) below, if applicable, assuming that the cost method is used.

a. Entry at date of acquisition

b. Goodwill purchased— computation only

c. Entry on 31 December 20X4 to record $ 15,000 earnings reported by UK

d. Entry on 31 March 20X5 for a cash dividend of $ 1 per share declared and paid by UK

2. Repeat requirement 1 above, assuming that the equity method is appropriate.

3. Why might TA use the cost method if it has significant influence?

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