Prince Corporation holds 75 percent of the common stock of Sword Distributors Inc., purchased on December 31, 20X1, for $2,100,000. At the date of acquisition, Sword reported common stock with a par value of $940,000, additional pald-in capital of $1,290,000, and retained earnings of $520,000. The fair value of the noncontrolling Interest at acquisition was $700,000. The differential at acquisition was attributable to the following items: Inventory (sold in 20x2) Land Goodwill Total Differential During 20X2, Prince sold a plot of land that it had purchased several years before to Sword at a gain of $7,000; Sword continues to hold the land. In 20X6, Prince and Sword entered into a five-year contract under which Prince provides management consulting services to Sword on a continuing basis: Sword pays Prince a fixed fee of $92,000 per year for these services. At December 31, 20X8, Sword owed Prince $23,000 as the final 20X8 quarterly payment under the contract. On January 2, 20X8, Prince paid $240,000 to Sword to purchase equipment that Sword was then carrying at $280,000. Sword had purchased that equipment on December 27, 20X2, for $420,000. The equipment is expected to have a total 15-year life and no salvage value. The amount of the differential assigned to goodwill has not been impaired. At December 31, 20X8, trial balances for Prince and Sword appeared as follows: Iten Cash Current Receivables Inventory Investment in Sword Distributors Land Buildings & Equipment Cost of Goods Sold Depreciation & Amortization Other Expenses Dividends Declared Accumulated Depreciation Current Payables Bonds Payable Connon Stock Additional Paid-in Capital Retained Earnings, January 1 Sales Other Income or Loss Income from Sword Distributors Total $12,500 17,500 20,000 $50,000 Answer is complete and correct. Remaining differential $ 37.500 $ Prince Corporation Debit Balance in Investment in Sword Account 59,700 115,800 298,000 2,837,375 418,000 2,590,000 2,186,000 186,000 1,366,000 46,000 Required: a. Compute the amount of the differential as of January 1, 20X8. $10,102,875 Credit $ 1,091,000 95,200 822,000 89,000 1,268,000 1,459,800 5,029,125 98,000 150,750 $10,102,875 Sword Distributors Inc. Debit Credit 47,000 103,400 235,900 $ 1,211,000 3,110,000 508,000 76,000 210,000 16,000 30,000 $5,547,300 As of December 31, 20X8, Sword had declared but not yet paid its fourth-quarter dividend of $5,000. Both companies use straight-line depreciation and amortization. Prince uses the fully adjusted equity method to account for its Investment in Sword. b. Verify the balance in Prince's Investment in Sword Distributors account as of December 31, 20X8. Answer is complete but not entirely correct. $ 2,817,375 $ 416,000 385,300 187,000 940,000 1,290,000 1,340,000 989,000 $5,547,300