Advanced Accounting 11th Edition by Paul Fischer,William Tayler, Rita Cheng

Exercise 10

Equity method investment with intercompany profits. Turf Company purchases a 30% interest in Minnie Company for $90,000 on January 1, 2011, when Minnie has the following stockholders' equity:
Common stock ($10 par)................................. $100,000
Paid-in capital in excess of par............................ 20,000
Retained earnings...................................... 130,000
Total............................................... $250,000
The excess cost was due to a building that is being amortized over 20 years. Since the investment, Minnie has consistently sold goods to Turf to realize a 40% gross
profit. Such sales total $50,000 during 2013. Turf has $10,000 of the goods in its beginning inventory and $40,000 in its ending inventory.
On January 1, 2013, Turf sells a machine with a book value of $15,000 to Minnie for $20,000. The machine has a 5-year life and is being depreciated on a straight-line basis. Minnie reports a net income of $60,000 for 2013 and pays $5,000 in dividends in 2013.
Prepare all 2013 entries caused by Turf 's investment in Minnie. Assume that Turf has recorded the tax on its internally generated income. Turf has properly recorded the investment using the equity method in previous periods. Ignore income tax considerations.