Canton Corporation is a majority-owned subsidiary of West Corporation. West acquired 75 percent ownership on January 1, 20X3, for $133,500. At that date, Canton reported common stock outstanding of $60,000 and retained earnings of $90,000, and the fair value of the noncontrolling interest was $44,500. The differential is assigned to equipment, which had a fair value $28,000 more than book value and a remaining economic life of seven years at the date of the business combination. Canton reported net income of $30,000 and paid dividends of $12,000 in 20X3.
a. Journal entries need to be recorded by West during 20X3 on its books if it accounts for its investment in Canton using the equity method. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)
1. Record the initial investment in Canton Corp.
2. Record West Corp.’s 75% share of Canton Corp.’s 20X3 income.
3. Record West Corp.’s 75% share of Canton Corp.’s 20X3 dividend.
4. Record West Corp’s 75% share of the amortization of the excess acquisition price.