Reference no: EM132746278
Question: On July 1, 2008, Muscat Corp. acquired a 30% interest in ABC Inc. for $250,000 in cash. On that date, ABC Inc's balance sheet disclosed net assets of $430,000. It also had a patent that was undervalued in its books by $70,000 (remaining useful life is 10 years). It had also an equipment that was overvalued by $20,000 (remaining useful life is 10 years). Muscat Corp. records the purchase based on the equity method.
During 2008, ABC Inc. reported net income of $100,000 and declared and paid cash dividends of $30,000. Muscat Corp. sold inventory costing $40,000 to ABC Inc. at a markup of 50% of cost. on September 1, 2008. ABC Inc. used 60% of this merchandise in its operations during 2008. The remaining inventory is consumed in the following year (2009).
By the end of 2009, ABC Inc. reported total inventory of $120,000. Out of this amount, 25% represented the remaining amount of an inventory that was purchased from Muscat Corp during 2009. ABC Inc. plans to sell this inventory in 2010. Assume that ABC Inc. sold 70% of the total inventory purchased from Muscat Corp. during 2009 in the same year. Assume further that, Muscat Corp sold the inventory to ABC Inc. at a markup of 25% of cost. For 2009, ABC Inc. reported net income of $90,000 and declared and paid dividends of $20,000.
Required: Prepare all the necessary journal entries to be recorded by Muscat Corp for 2009 in relation to the above information.
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