Record the journal entries necessary on crain''s books

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Reference no: EM1312812

Journal entries to record investments.

Crane Mechanics acquired 75 percent of Downey Enterprises on March 31, 2005, for $3,645,000. Downey's book value at that date totaled $4,000,000. Appraisal values were greater than book values for identifiable assets in the following amounts: Inventory ($300,000) and Plant and Equipment ($700,000). The purchase differential for Inventory is to be amortized over five months and Plant and Equipment over ten years. For the remainder of 2005 Downey reports $635,000 of income and pays $100,000 in dividends. The following balances exist for Crane at December 31, 2005, and Downey

At March 31 and December 31, 2005.

	Crain	Downey
	12/31/2005	3/31/2005	12/31/2005
Cash	730,000	175,000	180,000
Inventory	1,950,000	260,000	340,000
Plant and Equipment	17,650,000	5,150,000	5,765,000
Accumulated Depreciation	(4,655,000)	(935,000)	(1,250,000)
Investment in Downey	3,886,875
Expenses	6,400,000	1,000,000	4,265,000
Dividends	1,275,000	150,000	250,000
Total Debits	27,236,875	5,800,000	9,550,000
Liabilities	3,550,000	650,000	500,000
Common Stock	350,000	100,000	100,000
Additional Paid-In Capital	2,650,000	850,000	850,000
Retained Earnings	9,720,000	2,800,000	2,800,000
Sales	10,650,000	1,400,000	5,300,000
Extraordinary Gain From Acquisition of Downey	105,000
Investment Income	211,875
Total Credits	27,236,875	5,800,000	9,550,000

Record the journal entries necessary on Crain's books for 2005 assuming that Crain uses the equity method to account for its investment in Downey.

Reference no: EM1312812

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