On January 1, 2023, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Incorporated, for a total of $1,120,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $830,000, retained earnings of $380,000, and a noncontrolling interest fair value of $480,000. Corgan attributed the excess of fair value over Smashing's book value to various covenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing.
During the next two years, Smashing reported the following:
| Items | Net Income | Dividends Declared | Inventory Purchases From Corgan |
|---|---|---|---|
| 2023 | $ 288,000 | $ 48,000 | $ 238,000 |
| 2024 | 268,000 | 58,000 | 250,000 |
Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2023 and 2024, 30 percent of the current year purchases remain in Smashing's inventory.
Required:
a. Compute the equity method balance in Corgan's Investment in Smashing, Incorporated, account as of December 31, 2024.
b. Prepare the worksheet adjustments for the December 31, 2024, consolidation of Corgan and Smashing.
Answer is not complete.
Complete this question by entering your answers in the tabs below.
Required A
Required B
Prepare the worksheet adjustments for the December 31, 2024, consolidation of Corgan and Smashing.
Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
| No | Transaction | Accounts | Debit | Credit |
|---|---|---|---|---|
| 1 | G | Investment in Smashing | 25,875 | |
| | | Cost of goods sold | | 25,875 |
| 2 | S | Common stock - Smashing | 830,000 | |
| | | Retained earnings - Smashing | | |
| | | Investment in Smashing | | |
| | | Noncontrolling interest | | |
| 3 | A | Covenants | | |
| | | Investment in Smashing | | |
| | | Noncontrolling interest | | |
| 4 | I | Equity in earnings of Smashing | | |
| | | Investment in Smashing | | |
| 5 | D | Investment in Smashing | | |
| | | Dividends declared | | |
| 6 | E | Amortization expense | | |
| | | Covenants | | |
| 7 | TI | Sales | 250,000 | |
| | | Cost of goods sold | | 250,000 |
| 8 | G | Cost of goods sold | 28,125 | |
| | | Inventory | | 28,125 |
