Master Corporation acquired 80% ownership of Stanley Wood Products on January 1, 20X1 for $160,000. On this date, Stanley's retained earnings were $50,000 and the fair value of the noncontrolling interest was $40,000. During 20X5, Master recorded its share of Stanley's income of $24,000 under the equity method and received $8,000 in dividends. Consolidation entries were made to eliminate the intercompany balances and income, assign beginning differentials, and prepare consolidated financial statements for Master and Stanley as of December 31, 20X5.

1. P5-39 Comprehensive Problem: Majority-Owned Subsidiary
Master Corporation acquired 80 percent ownership of Stanley Wood Products
Company on January 1, 20X1, for $160,000. On that date, the fair value of the
noncontrolling interest was $40,000, and Stanley reported retained earnings of
$50,000 and had $100,000 of common stock outstanding. Master has used the
equity method in accounting for its investment in Stanley.
Trial balance data for the two companies on December 31, 20X5, are as follows:
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Additional Information
1. On the date of combination, the fair value of Stanley’s depreciable assets was
$50,000 more than book value. The accumulated depreciation on these assets
was $10,000 on the acquisition date. The differential assigned to depreciable
assets should be written off over the following 10-year period.
2. There was $10,000 of intercorporate receivables and payables at the end of
20X5.
Required
a. Give all journal entries that Master recorded during 20X5 related to its
investment in Stanley.

2. Cash 8,000
Investment in Stanley Wood 8,000
(To Record Dividends from Stanley Wood)
Investment in Stanley Wood 24,000
Income From Stanley Wood 24,000
(To Record Income Under Equity Method)
Income From Stanley Wood 4,000
Investment in Stanley Wood 4,000
b. Give all consolidation entries needed to prepare consolidated statements for
20X5.
Income from Subsidiary 20,000
Dividends Declared 8,000
Investment in SW Products Stock 12,000
(Eliminate Income from Subsidiary)
Income to Non-Controlling Interest 5,000
Dividends Declared 2,000
Non-Controling Interest 3,000

3. Common Stock - SW Products 100,000
Retained Earnings 90,000
Differential 30,000
Investment in SW Products Stock 176,000
Non-Controling Interest 44,000
Building and Equipment 50,000
Accumulated Depreciation 20,000
Differential 30,000
(Assign Beginning Differential)
Depreciation Expense 5,000
Accumulated Depreciation 5,000
(Amortise Differential)
Accounts Payable 10,000
Cash and Receivables 10,000
(Eliminate Inter-Corporate Recivables and
Payables)
c. Prepare a three-part worksheet as of December 31, 20X5.

4. Master
Stanley
Wood
Elimination
Entries
Corporation Company Debit Credit Consolidated
Income Statement
Sales 200,000 100,000 300,000
Cost of Goods Sold (120,000) (50,000) (170,000)
Depreciation Expense (25,000) (15,000) 5,000 (45,000)
Inventory Losses (15,000) (5,000) (20,000)
Income from Stanley Wood 20,000 24,000 4,000 -
Non-Controlling Interest in Net
Income 6,000 1,000 (5,000)
Controlling Interest in Net Income 60,000 30,000 35,000 5,000 60,000
Statement of Retained Earnings
Beginning Balance 314,000 90,000 90,000 314,000
Net Income 60,000 30,000 35,000 5,000 60,000
Dividend Declared (30,000) (10,000) 10,000 (30,000)
Ending Balance 344,000 110,000 125,000 15,000 344,000
Balance Sheet

5. Cash and Receivables 81,000 65,000 10,000 136,000
Inventory 260,000 90,000 350,000
Land 80,000 80,000 160,000
Buildings and Equipment 500,000 150,000 50,000 700,000
Accumulated Depreciation (205,000) (105,000) 25,000 (335,000)
Investment in Stanley Wood 188,000 168,000
20,000
Total Assets 904,000 280,000 50,000 223,000 1,011,000
Accounts Payable 60,000 20,000 10,000 70,000
Notes Payable 200,000 50,000 250,000
Common Stock 300,000 100,000 100,000 300,000
Retained Earnings 344,000 110,000 125,000 15,000 344,000
Non-Controlling Interest 42,000 47,000
5,000
Total Liabilities & Equity 904,000 280,000 235,000 62,000 1,011,000