60.1K

Verified Solution

Link Copied!

Pure Company acquired 80% of the outstanding common stock of Saxxon Company on January 2, 2016 for $675,000. At that time, Saxxons total stockholders equity amounted to $1,000,000. Saxxon Company reported net income and dividends for the last two years as follows:

2016 2017

Reported net income$45,000$60,000

Dividends distributed 35,000 75,000

Required:

Prepare journal entries for Pure Company for 2016 and 2017assuming Pure uses:

A. The cost method to record its investment

B. The complete equity method to record its investment. The difference between implied value and the book value of equity acquired was attributed solely to a building, with a 20-year expected life.

2) Pell Company purchased 90% of the stock of Salton Company on January 1, 2007, for $1,860,000, an amount equal to $60,000 in excess of the book value of equity acquired. All book values were equal to fair values at the time of purchase (i.e., any excess payment relates to subsidiary goodwill). On the date of purchase, Salton Companys retained earnings balance was $200,000. The remainder of the stockholders equity consists of no-par common stock. During 2017, Salton Company declared dividends in the amount of $40,000, and reported net income of $160,000. The retained earnings balance of Salton Company on December 31, 2016 was $640,000. Pell Company uses the cost method to record its investment. No impairment of goodwill was recognized between the date of acquisition and December 31, 2017.

Required:

Prepare in general journal form the workpaper entries that would be made in the preparation of a consolidated statements workpaper on December 31, 2017.

3) On January 1, 2017, Pruit Company purchased 85% of the outstanding common stock of Salty Company for $525,000. On that date, Salty Companys stockholders equity consisted of common stock, $150,000; other contributed capital, $60,000; and retained earnings, $210,000. Pruit Company paid more than the book value of net assets acquired because the recorded cost of Salty Companys land was significantly less than its fair value.

During 2017 Salty Company earned $222,000 and declared and paid a $75,000 dividend. Pruit Company used the partial equity method to record its investment in Salty Company.

Required:

A.Prepare the investment related entries on PruitCompanys books for 2017.

B.Prepare the workpaper eliminating entries for a workpaper on December 31, 2017.

Answer & Explanation Solved by verified expert

See Answer