FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text:George Corporation paid $240,000 for 45% of Washington Corporation's outstanding voting common
stock on July 1, 2021. Washington's stockholders' equity on January 1, 2021 was $260,000 consisting of
$160,000 capital stock and $100,000 retained earnings. During 2021, Washington reported net income of
$70,000 and on October 1, 2021, Washington declared dividends of $32,000. Washington's assets and
liabilities were stated at fair values on July 1, 2021 except for land that was undervalued by $40,000 and
equipment with a five-year remaining useful life that was undervalued by $30,000.
Requirements
1. Perform the preliminary calculation to determine the excess of fair value over book value for the
initial investment in Washington.
hint: The acquisition was made mid year.
2 Prepare a schedule to assign the excess of cost over book value - see the slide titled "Cost/Book Value
Assignment".
3. Prepare an Amortization schedule for the cost/book value differences similar to the one in the power
point presentation. See the slide "Amortization and Investment Income".
4. Prepare all of the journal entries that will be recorded on the books of George Company to account for
this investment. (Initial purchase and activity for 2018).
5. Provide the calculation of the Investment in Washington Account at December 31, 2021.
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