Task: Equity Entries with Differential:
On January 1, 20X0, Hunter Corporation issued 6,000 of its $10 par value shares to acquire 45 percent of the shares of Arrow Manufacturing Arrow Manufacturing's balance sheet immediately before the acquisition contained the following items (Arrow Manufacturing Balance sheet below)
| |
ARROW MANUFACTURING |
|
| Balance Sheet |
| January 1, 20X0 |
| |
Book Values |
|
Fair Valuie |
| Assets |
|
|
|
| Cash and Receivables |
$30,000 |
|
$30,000 |
| Land |
70,000 |
|
80,000 |
| Building and Equipment (net) |
120,000 |
|
150,000 |
| Patents |
80,000 |
|
80,000 |
|
|
|
|
| Total Assets |
300,000 |
|
|
|
|
|
|
| Liabilities and Equities |
|
|
|
| Accounts Payable |
$90,000 |
|
$90,000 |
| Common Stock |
150,000 |
|
|
| Retained Earnings |
60,000 |
|
|
|
|
|
|
| Total Liabilities and Equities |
$300,000 |
|
|
Analysis:
On the date of the stock acquisition, Hunter's shares were selling at $35, and Arrow Manufacturing's buildings and equipment had a remaining economic life of 10 years. The amount of the differential assigned to goodwill is not amortized. In the two years following the stock acquisition, Arrow Manufacturing reported net income of $80,000 and $50,000 and paid dividends of $20,000 and $40,000, respectively. Hunter used the equity method in accounting for its ownership of Arrow Manufacturing.
Problem:
1) Give the entry recorded by Hunter Corporation at the time of acquisition
2) Give the journal entries recorded by Hunter during 20X0 and 20X1 related to its investment in Arrow manufacturing.
3) What balance will be reported in Hunter's investment account on December 31, 20x1?