On July 1, 2009, Clearwater Inc. purchased 6,000 shares of the outstanding common stock of Mountain Corporation at a cost of $140,000. Mountain had 30,000 shares of outstanding common stock. Assume the book value and fair value of net assets is $650,000. Both companies have a January through December fiscal year. The following data pertain to Mountain Corporation during 2009:
Required:
(1.) Prepare the entry to record the original investment in Mountain.
(2.) Compute the goodwill (if any) on the acquisition.
(3.) Prepare the necessary entries (other than acquisition) for 2009 under the equity method.
$\begin{array}{ll}
\text { Net income, January } 1 \text { - June } 30 & \$ 14,000 \
\text { Net income, July 1 - December 31 } & \$ 18,000 \
\text { Dividends declared and paid, Jan. 1 - Jun .30 } & \$ 12,000 \
\text { Dividends declared and paid, Jul 1 - Dec. 31 } & \$ 12,000
\end{array}$

Question

On July 1, 2009, Clearwater Inc. purchased 6,000 shares of the outstanding common stock of Mountain Corporation at a cost of $140,000. Mountain had 30,000 shares of outstanding common stock. Assume the book value and fair value of net assets is $650,000. Both companies have a January through December fiscal year. The following data pertain to Mountain Corporation during 2009:
Required:
(1.) Prepare the entry to record the original investment in Mountain.
(2.) Compute the goodwill (if any) on the acquisition.
(3.) Prepare the necessary entries (other than acquisition) for 2009 under the equity method.
 $\begin{array}{ll}
\text { Net income, January } 1 \text { - June } 30 & \$ 14,000 \
\text { Net income, July 1 - December 31 } & \$ 18,000 \
\text { Dividends declared and paid, Jan. 1 - Jun .30 } & \$ 12,000 \
\text { Dividends declared and paid, Jul 1 - Dec. 31 } & \$ 12,000
\end{array}$

Quizplus · Accepted Answer

The Answer of On July 1, 2009, Clearwater Inc. purchased 6,000 shares of the outstanding common stock of Mountain Corporation at a cost of $140,000. Mountain had 30,000 shares of outstanding common stock. Assume the book value and fair value of net assets is $650,000. Both companies have a January through December fiscal year. The following data pertain to Mountain Corporation during 2009:
Required:
(1.) Prepare the entry to record the original investment in Mountain.
(2.) Compute the goodwill (if any) on the acquisition.
(3.) Prepare the necessary entries (other than acquisition) for 2009 under the equity method.
 $\begin{array}{ll}
\text { Net income, January } 1 \text { - June } 30 & \$ 14,000 \
\text { Net income, July 1 - December 31 } & \$ 18,000 \
\text { Dividends declared and paid, Jan. 1 - Jun .30 } & \$ 12,000 \
\text { Dividends declared and paid, Jul 1 - Dec. 31 } & \$ 12,000
\end{array}$