Crane Mechanics acquired 75% of Downey: Journal entries, consolidation worksheet

See attached file.

Complete exercise 3-14, parts A, B, and C, on p. 127 of Advanced Accounting.

You must utilize the attached excel worksheet to complete.
* Do not significantly alter the formatting of the spreadsheet
* Do not delete tabs or columns
* Do not change column headers or descriptions
* Do not alter formatting, shading or colors
* Although I have provided enough lines for entries you may add rows
* Use the tab called 'Work' for calculations (optional - not graded)

EXERCISE 3-14
Crane Mechanics acquired 75 percent of Downey Enterprises on March 31, 2005, for $3,645,000. Downey's book value at that date totaled $4,000,000. Appraisal values were greater than book values for identifiable assets in the following amounts: Inventory ($300,000) and Plant and Equipment ($700,000). The purchase differential for Inventory is to be amortized over five months and Plant and Equipment over ten years. For the remainder of 2005 Downey reports $635,000 of income and pays $100,000 in dividends. The following balances exist for Crane at December 31, 2005, and Downey at March 31 and December 31, 2005.

Crain Downey
12/31 3/31 12/31
Cash $730,000 $175,000 $180,000
Inventory 1,950,000 260,000 340,000
Plant and Equipment 17,650,000 5,150,000 5,765,000
Accumulated Depreciation (4,655,000) (935,000) (1,250,000)
Investment in Downey 3,886,875
Expenses 6,400,000 1,000,000 4,265,000
Dividends 1,275,000 150,000 250,000
Total Debits $27,236,875 $5,800,000 $9,550,000
Liabilities $3,550,000 $650,000 $500,000
Common Stock 350,000 100,000 100,000
Additional Paid-In Capital 2,650,000 850,000 850,000
Retained Earnings 9,720,000 2,800,000 2,800,000
Sales 10,650,000 1,400,000 5,300,000
Extraordinary Gain From
Acquisition of Downey 105,000
Investment Income 211,875
Total Credits $27,236,875 $5,800,000 $9,550,000

Required:

A. Record the journal entries necessary on Crain's books for 2005 assuming that Crain uses the
equity method to account for its investment in Downey.
B. Prepare all worksheet eliminations in journal entry form necessary to consolidate Crain and
Downey at December 31, 2005.
C. Prepare the consolidation worksheet for Crain and Downey at December 31, 2005.

NOTE: Exercises 3-15, 3-16, and 3-17 repeat Exercises 3-10, 3-11, and 3-12 with the parent company using the cost
method to account for the investment.