Record the journal entries necessary on crain''s books

Assignment Help Financial Accounting

Reference no: EM139865

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.

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: EM139865

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