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Item $2$

Problem $05-07($LO$2,3,5)$

Large Ltd$.$ purchased $75\%$ of Small Company on January $1,$ Year $6,$ for $$810,000,$ when the statement of financial position for Small showed common shares of $$600,000$ and retained earnings of $$300,000.$ On that date, the inventory of Small was undervalued by $$75,000,$ and a patent with an estimated remaining life of five years was overvalued by $$98,000.$

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Small reported the following subsequent to January $1,$ Year $6$:

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$$Profit $($Loss$)$DividendsYear $6$$$160,000$$$45,000$Year $7(55,000)30,000$Year $8110,00060,000$

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A test for goodwill impairment on December $31,$ Year $8,$ indicated a loss of $$21,300$ should be reported for Year $8$ on the consolidated income statement. Large uses the cost method to account for its investment in Small and reported the following for Year $8$ for its separate$-$entity statement of changes in equity:

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$$Retained earnings, beginning$$700,000$Profit$400,000$Dividends$(50,000)$Retained earnings, end$$1,050,000$

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Required:

$($a$)$ Prepare the cost method journal entries of Large for each year. $($If no entry is required for a transaction$/$event$,$ select $"$No journal entry required" in the first account field.$)$

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Year $6$

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Year $7$

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Year $8$

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$($b$)$ Compute the following on the consolidated financial statements for the year ended December $31,$ Year $8$: $($Omit $ sign in your response.$)$

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$($i$)$ Goodwill

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Goodwill$$$ $220000$ Numeric ResponseEdit Unavailable. $220000$ incorrect.

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$($ii$)$ Non$-$controlling interest on the statement of financial position

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Non$-$controlling interest$$$

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$($iii$)$ Retained earnings, beginning of year

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Retained earnings, beginning of year$$$

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$($iv$)$ Profit attributable to Large$$s shareholders

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Profit attributable to Large$$s shareholders$$$

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$($v$)$ Profit attributable to non$-$controlling interest

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Profit attributable to non$-$controlling interest$$$

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$($c$)$ Now assume that Large is a private entity, uses ASPE, and chooses to use the equity method to report its investment in Small.

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$($i$)$ Prepare Large$$s journal entries for each year related to its investment in Small. $($If no entry is required for a transaction$/$event$,$ select $"$No journal entry required" in the first account field.$)$

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Year $6$

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Year $7$

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Year $8$

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$($ii$)$ Determine the investment in Small at December $31,$ Year $8.($Omit $ sign in your response.$)$

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Investment in Small under equity method$$$