P5-26 Equity Method with Differential

Assume that Plug Corp. has significant influence (NOT control!) over Spark Corp.

a. For internal reporting, prepare the following journal entries for Plug:

(1) Record initial investment at 1/1/208: (Note that Plug issued stock to acquire Sparks stock, not paid in cash.)

Ps IVST in S. $200,000

Common Stock. $50,000

Additional paid-in Capital. $150,000

(2) The amount of goodwill included in this acquisition = $(260,000)

Show work! (Note that Plug did not acquire 100% of Spark.)

FVin = $40,000 + $100,000 + $70,000 + $320,000 - $70,000 = $460,000

Goodwill = FVout FVin = ($25,000 x $8) - $460,000 = ($260,000)

(3) Record investment income at 12/31/208:

Show work!

(4) Record cash dividend received during 12/31/208:

Show work!

b. For external reporting, Plug should report:

Investment income from Spark for 208 = $Click here to enter text.

Investment in Spark at December 31, 208 = = $Click here to enter text.

Show work!