On January 4, 2020, Garcia Corporation purchased 30% of the outstanding voting common stock of Hall Company
Question:
On January 4, 2020, Garcia Corporation purchased 30% of the outstanding voting common stock of Hall Company for $520,000. This purchase gave Garcia the ability to exercise significant influence over the operating and financial policies of Hall. On the date of purchase, Hall’s books reported assets of $1,800,000 and liabilities of $700,000. Any excess of cost over book value of Garcia’s investment was attributed to a patent with a remaining useful life of ten years. During 2020, Hall reported net income of $280,000 and declared and paid cash dividends of $40,000. In the following year, 2021, Hall reported net income of $310,000 and declared and paid cash dividends of $50,000.
In 2020, Hall sold inventory costing $53,000 to Garcia for $75,000. Hall sold 70% of that inventory to outsiders during 2020 with the remainder being sold in 2021. During 2021, Garcia sold inventory costing $80,000 to Hall for $110,000. Hall sold 80% of that inventory to outsiders during 2021.
Prepare all of Garcia’s journal entries for 2020 to apply the equity method.
Advanced Accounting
ISBN: 9781260247824
14th Edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik