Reference no: EM132812831
Question - On January 1, 2013, Plano Company acquired 8 percent (24,800 shares) of the outstanding voting shares of the Sumter Company for $322,400, an amount equal to Sumter's underlying book and fair value. Sumter declares and pays a cash dividend to its stockholders each year of $155,000 on September 15. Sumter reported net income of $336,000 in 2013, $405,600 in 2014, $453,000 in 2015, and $429,300 in 2016. Each income figure can be assumed to have been earned evenly throughout its respective year. In addition, the fair value of these 24,800 shares was indeterminate, and therefore the investment account remained at cost.
On January 1, 2015, Plano purchased an additional 32 percent (99,200 shares) of Sumter for $1,592,950 in cash and began to use the equity method. This price represented a $64,200 payment in excess of the book value of Sumter's underlying net assets. Plano was willing to make this extra payment because of a recently developed patent held by Sumter with a 15-year remaining life. All other assets were considered appropriately valued on Sumter's books.
On July 1, 2016, Plano sold 10 percent (31,000 shares) of Sumter's outstanding shares for $713,000 in cash. Although it sold this interest, Plano maintained the ability to significantly influence Sumter's decision-making process. Assume that Plano uses a weighted average costing system. Prepare the journal entries for Plano for the years of 2013 through 2016. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to the nearest whole dollar.)
Required -
1. Record the cost of 24,800 shares of Sumter Company.
2. Record the annual dividends declared and received from Sumter Company. Because declaration and payment are on same day, a dividend receivable account is unnecessary.
3. Record the annual dividends declared and received from Sumter Company.
4. Record the cost of 99,200 additional shares of Sumter Company.
5. Record the entry to recoginze the retrospective effect of change to equity method.
6. Record the annual dividend declared and received from Sumter.
7. Record the accrued 2015 income based on 40% ownership of Sumter.
8. Record the amortization of $64,200 patent over 15 years.
9. Record the accrued ½ year income of 40% ownership.
10. Record the ½ year amortization of patent to establish correct book value for investment as of 7/1/16.
11. Record the 31,000 shares of Sumter Company sold.
12. Record the annual dividend declared and received.
13. Record the 1/2 year income based on remaining 30% ownership.
14. Record the 1/2 year of patent amortization.