On January 1, 2013, Spark Corp. acquired a 40% interest in Cranston Inc. for $250,000. On that date, Cranston’s balance sheet disclosed net assets of $430,000. During 2013, Cranston reported net income of $100,000 and paid cash dividends of $30,000. Spark sold inventory costing $40,000 to Cranston during 2013 for $50,000. Cranston used all of this merchandise in its operations during 2013. Any excess cost over fair value is attributable to an unamortized trademark with a 20 year remaining life.

Required:

Prepare all of Spark’s journal entries for 2013 to apply the equity method to this investment.

Amortization Calculation

Purchase Price of Cranston Stock	$
Less: Equivalent book value of Cranston Inc. stock
Trademark	$
Life in years (maximum)	÷
Annual amortization	$

Answer rating: 100% (QA)

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