Problem
Roller Corporation purchased 100 percent ownership of Steam Company on January 1, 20X5, for $273,000. On that date, the book value of Steam's reported net assets was $208,000. The excess over book value paid is attributable to depreciable assets with a remaining useful life of 5 years. Net income and dividend payments of Steam in the following periods were
|
Year
|
Net Income
|
Dividends
|
|
20X5
|
$
|
34,000
|
$
|
9,000
|
|
20X6
|
|
54,000
|
|
19,000
|
|
20X7
|
|
34,000
|
|
39,000
|
Required:
a. Prepare journal entries on Roller Corporation's books relating to its investment in Steam Company for each of the three years, assuming it accounts for the investment using the cost method.
Journal Entry Worksheet
Record the purchase of Steam Company stock for 20X5.
Record the dividend income from Steam Company for 20X5.
Record the dividend income from Steam Company for 20X6.
Record the dividend income from Steam Company for 20X7.
b. Prepare journal entries on Roller Corporation's books relating to its investment in Steam Company for each of the three years, assuming it accounts for the investment using the equity-method.
Journal Entry Worksheet
Record the purchase of Steam Company stock for 20X5.
Record the dividend from Steam Company for 20X5.
Record the equity-method income for 20X5.
Record the amortization of differential value for 20X5.
Record the dividend from Steam Company for 20X6.
Record the equity-method income for 20X6.
Record the amortization of the differential value for 20X6.
Record the dividend from Steam Company for 20X7.
Record the equity-method income for 20X7.
Record the amortization of the differential value for 20X7.