Prince Corporation holds 75 percent of the common stock of Sword Distributors Inc., purchased on December 31, 20X1, for $2,160,000. At the date of acquisition, Sword reported common stock with a par value of $900,000, additional paid-in capital of $1,250,000, and retained earnings of $530,000. The fair value of the noncontrolling interest at acquisition was $720,000. The differential at acquisition was attributable to the following items:
Inventory (sold in 20X2) $ 50,000 Land 70,000 Goodwill 80,000 Total Differential $ 200,000 During 20X2, Prince sold a plot of land that it had purchased several years before to Sword at a gain of $28,000; Sword continues to hold the land. In 20X6, Prince and Sword entered into a five-year contract under which Prince provides management consulting services to Sword on a continuing basis; Sword pays Prince a fixed fee of $92,000 per year for these services. At December 31, 20X8, Sword owed Prince $23,000 as the final 20X8 quarterly payment under the contract.
On January 2, 20X8, Prince paid $280,000 to Sword to purchase equipment that Sword was then carrying at $320,000. Sword had purchased that equipment on December 27, 20X2, for $480,000. The equipment is expected to have a total 15-year life and no salvage value. The amount of the differential assigned to goodwill has not been impaired.
At December 31, 20X8, trial balances for Prince and Sword appeared as follows:
Prince Corporation Sword Distributors Inc.
Item Debit Credit Debit Credit
Cash $ 52,700 $ 40,000 Current Receivables 102,800 90,400 Inventory 298,000 220,900 Investment in Sword Distributors 2,812,250 Land 406,000 1,211,000 Buildings & Equipment 2,570,000 3,080,000 Cost of Goods Sold 2,193,000 510,000 Depreciation & Amortization 184,000 83,000 Other Expenses 1,363,000 213,000 Dividends Declared 48,000 18,000 Accumulated Depreciation $ 1,098,000 $ 410,000 Current Payables 93,200 441,300 Bonds Payable 879,000 190,000 Common Stock 91,000 900,000 Additional Paid-in Capital 1,270,000 1,250,000 Retained Earnings, January 1 1,474,800 1,300,000 Sales 4,877,000 1,002,000 Other Income or Loss 93,000 27,000 Income from Sword Distributors 153,750 Total $ 10,029,750 $ 10,029,750 $ 5,493,300 $ 5,493,300 As of December 31, 20X8, Sword had declared but not yet paid its fourth-quarter dividend of $5,000. Both companies use straight-line depreciation and amortization. Prince uses the fully adjusted equity method to account for its investment in Sword.
Required:
a. Compute the amount of the differential as of January 1, 20X8.
b. Verify the balance in Prince’s Investment in Sword Distributors account as of December 31, 20X8.
c. Present all consolidation entries that would appear in a three-part consolidation worksheet as of December 31, 20X8. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to nearest whole dollar amount.)