Tucker Corporation purchases a 25% interest in Lincoln Company for $120,000 on January 1, 2017. The following determination and distribution of excess schedule is prepared:Price paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $120,000Less interest acquired:Common stock ($10 par). . . . . . . . . . . . . . . . . . . . . .$200,000Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000Total stockholders’ equity. . . . . . . . . . . . . . . . . . . . . $300,000Interest acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x 25% 75,000Excess of cost over book value. . . . . . . . . . . . . . . . . $ 45,000Less excess attributable to equipment [25% x $40,000 (5-year life)]. 10,000Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,000Lincoln Company earns income of $25,000 in 2017 and $30,000 in 2018. Lincoln Company declares a 25-cent per-share cash dividend on December 22, 2018, payable January 12, 2019, to stockholders of record on December 30, 2018.During 2018, Lincoln sells merchandise costing $10,000 to Tucker for $15,000. Twenty percent of the merchandise is still in Tucker’s ending inventory on December 31, 2018. The fair value of the investment is $135,000 on December 31, 2017, and $145,000 on December 31, 2018.1. Assuming the use of the equity method, prepare the adjustment on Tucker’s books on December 31, 2017, and December 31, 2018, to account for its investment in Lincoln Company. Assume Tucker Corporation makes no adjustment except at the end of each calendar year. Ignore income tax considerations.2. Assuming the use of the fair value option, prepare the adjustment on Tucker’s books on December 31, 2017, and December 31, 2018, to account for its investment in Lincoln Company. Assume Tucker Corporation makes no adjustment except at the end of each calendar year. Ignore income tax considerations.
Tucker Corporation purchases a 25% interest in Lincoln Company for $120,000 on January 1, 2017. The following determination and distribution of excess schedule is prepared:
Price paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $120,000
Less interest acquired:
Common stock ($10 par). . . . . . . . . . . . . . . . . . . . . .$200,000
Total
Interest acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x 25% 75,000
Excess of cost over book value. . . . . . . . . . . . . . . . . $ 45,000
Less excess attributable to equipment [25% x $40,000 (5-year life)]. 10,000
Lincoln Company earns income of $25,000 in 2017 and $30,000 in 2018. Lincoln Company declares a 25-cent per-share cash dividend on December 22, 2018, payable January 12, 2019, to stockholders of record on December 30, 2018.
During 2018, Lincoln sells merchandise costing $10,000 to Tucker for $15,000. Twenty percent of the merchandise is still in Tucker’s ending inventory on December 31, 2018. The fair value of the investment is $135,000 on December 31, 2017, and $145,000 on December 31, 2018.
1. Assuming the use of the equity method, prepare the adjustment on Tucker’s books on December 31, 2017, and December 31, 2018, to account for its investment in Lincoln Company. Assume Tucker Corporation makes no adjustment except at the end of each calendar year. Ignore income tax considerations.
2. Assuming the use of the fair value option, prepare the adjustment on Tucker’s books on December 31, 2017, and December 31, 2018, to account for its investment in Lincoln Company. Assume Tucker Corporation makes no adjustment except at the end of each calendar year. Ignore income tax considerations.
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