On January 1,2016,Preston Corporation Acquired an 80% Interest in Spiegel

question 27

Essay

On January 1,2016,Preston Corporation acquired an 80% interest in Spiegel Company for $2,400,000.At that time Spiegel Company had common stock of $1,800,000 and retained earnings of $800,000.The book values of Spiegel Company's assets and liabilities were equal to their fair values except for land and bonds payable.The land's fair value was $120,000 and its book value was $100,000.The outstanding bonds were issued on January 1,2005,at 9% and mature on January 1,2018.The bond principal is $600,000 and the current yield rate on similar bonds is 8%.
Required:
Prepare the workpaper entries necessary on December 31,2016,to allocate,amortize,and depreciate the difference between implied and book value.

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Definitions:

Sales Journal

A specialized accounting journal used to record all sales of merchandise on credit.

Accrual Basis

A financial recording technique that documents incomes and expenses as they are incurred or earned, without taking into account the timing of cash transactions.

Cash Basis

An accounting method wherein revenues and expenses are recorded when they are actually received or paid, rather than when they are incurred.