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Equity Entries with Differential On January 1 20X0 Hunter Corporation issued 6000 of its $10 par value shares to acquire 45 percent of the shares of Arrow Manufacturing Arrow Manufacturing

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:

TOLLIVER CORPORATION

Balance Sheet

January 1, 20X2

 

Book Value

Fair Value

Assets

 

 

Cash & Receivables

$ 30,000

$ 30,000

Land

70,000

80,000

Buildings & Equipment (net)

120,000

150,000

Patent

80,000

80,000

Total Assets

$300,000

 

Liabilities & Equities

 

 

Accounts Payable

$ 90,000

90,000

Common Stock

150,000

 

Retained Earnings

60,000

 

Total Liabilities & Equities

$300,000

 

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 impaired.

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.

Required

a. Give the entry recorded by Hunter Corporation at the time of acquisition.

b. Give the journal entries recorded by Hunter during 20X0 and 20X1 related to its investment in Arrow Manufacturing.

c. What balance will be reported in Hunter’s investment account on December 31, 20X1?

Jul 09 2020 View more View Less

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