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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.$

$$

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

$$

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

$$

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:

$$

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

$$

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.$)$

$$

Year $6$ Problem $05-07($LO$2,3,5)$

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

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

A test for goodwill impairment on December $31,$ Year $8,$ indicated a loss of $\backslash$$$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:

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.$)$

Year $6($b$)$ Compute the following on the consolidated financial statements for the year ended December $31,$ Year $8$: $($Omit $\backslash$$ sign in your response.$)$

$($i$)$ Goodwill

Goodwill $\backslash$$

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

Non$-$controlling interest

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

Retained earnings, beginning of year

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

Profit attributable to Large's shareholders

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

Profit attributable to non$-$controlling interest

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

$($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.$)$ Journal entry worksheet

$1$

$2$

$3$

$4$

Record the purchase of $75\backslash \%$ of Small Company.

Note: Enter debits before credits.

$\backslash$begin$\{$tabular$\}\{|$c$|$l$|$l$|$l$|\}$

$\backslash$hline Date & General Journal & Debit & Credit $\backslash \backslash$

$\backslash$hline Year $6$ & & & $\backslash \backslash$

$\backslash$hline & & & $\backslash \backslash$

$\backslash$hline & & & $\backslash \backslash$

$\backslash$hline & & & $\backslash \backslash$

$\backslash$hline & & & $\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$ Journal entry worksheet

$13$

$4$

Record $75\backslash \%$ of Small Company year $6$ net income.

Note: Enter debits before credits. Journal entry worksheet

$1$

$2$

$3$

$4$

Record $75\backslash \%$ of the dividend received from Small Company.

Note: Enter debits before credits.

$\backslash$begin$\{$tabular$\}\{|$c$|$l$|$l$|$l$|\}$

$\backslash$hline Date & General Journal & Debit & Credit $\backslash \backslash$

$\backslash$hline Year $6$ & & & $\backslash \backslash$

$\backslash$hline & & & $\backslash \backslash$

$\backslash$hline & & & $\backslash \backslash$

$\backslash$hline & & & $\backslash \backslash$

$\backslash$hline & & & $\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$