Penn Corporation acquired a 75% interest in Sweet Company on January 1, 2016, for $2,000,000. The book value and fair value of the assets and liabilities of Sweet Company on that date were as follows:

The property and equipment had a remaining life of 6 years on January 1, 2016, and the deferred charge was being amortized over a period of 5 years from that date. Common stock was $1,500,000 and retained earnings was $900,000 on January 1, 2016. Penn Company records its investment in Sweet Company using the cost method.

Required:

Prepare, in general journal form, the December 31, 2016, workpaper entries necessary to:

A. Eliminate the investment account.

B. Allocate and amortize the difference between implied and book value.

Transcribed Image Text:

Book Vahie Far Vahue Curent Assets 600,000 S 600,000 Property & Equipment (net) 1,400,000 1,800,000 Land 700,000 900,000 Deferred Charge 300,000 300,000 Total Assets 3,000,000 3,600,000 Less Liabilities 600,000 600,000 Net Assets $ 2,400,000 $ 3,000,000 Book Vahie Far Vahue Curent Assets 600,000 S 600,000 Property & Equipment (net) 1,400,000 1,800,000 Land 700,000 900,000 Deferred Charge 300,000 300,000 Total Assets 3,000,000 3,600,000 Less Liabilities 600,000 600,000 Net Assets $ 2,400,000 $ 3,000,000

Answer rating: 100% (QA)

Elimination of the investment is the way through which goodwill is being calculated Therefore ... View the full answer