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1
1. Phillips Company bought 40 percent ownership in Jones Bag Company on January 1, 20X1, at underlying book value. During the period of January 1, 20X1, through December 31, 20X3, the market value of Phillips' investment in Jones' stock increased by $2,000 each year. In 20X1, 20X2, and 20X3, Jones Bag reported the following:
|
Year |
Net Income |
Dividends |
||||||
|
20X1 |
|
$ |
13,000 |
|
|
$ |
20,000 |
|
|
20X2 |
|
|
17,000 |
|
|
|
15,000 |
|
|
20X3 |
|
|
25,000 |
|
|
|
15,000 |
|
|
|
||||||||
The balance in Phillips Company’s investment account on December 31, 20X3, was $61,000.
Required:
In each of the following independent cases, determine the amount that Phillips paid for its investment in Jones Bag stock assuming that Phillips accounted for its investment by carrying the investment at fair value, or using the equity method.
2. Port Company purchased 31,500 of the 105,000 outstanding shares of Sund Company common stock on January 1, 20X2, for $184,000. The purchase price was equal to the book value of the shares purchased. Sund reported the following:
|
Year |
Net Income |
Dividends |
||||||
|
20X2 |
|
$ |
45,000 |
|
|
$ |
30,000 |
|
|
20X3 |
|
|
35,000 |
|
|
|
|
|
|
20X4 |
|
|
14,000 |
|
|
|
|
|
|
|
||||||||
Required:
Compute the amounts Port Company should report as the carrying values of its investment in Sund Company at December 31, 20X2, 20X3, and 20X4.
3. Reden Corporation purchased 30 percent of Montgomery Company’s common stock on January 1, 20X9, at underlying book value of $195,900. Montgomery’s balance sheet contained the following stockholders’ equity balances:
|
|
|||
|
Preferred Stock ($5 par value, 48,000 shares issued and outstanding) |
$ |
240,000 |
|
|
Common Stock ($1 par value, 144,000 shares issued and outstanding) |
|
144,000 |
|
|
Additional Paid-In Capital |
|
189,000 |
|
|
Retained Earnings |
|
320,000 |
|
|
Total Stockholders’ Equity |
$ |
893,000 |
|
|
|
|||
Montgomery’s preferred stock is cumulative and pays a 10 percent annual dividend. Montgomery reported net income of $101,000 for 20X9 and paid total dividends of $56,000.
Required:
Give the journal entries recorded by Reden Corporation for 20X9 related to its investment in Montgomery Company common stock.
4. On December 31, 20X3, Broadway Corporation reported common stock outstanding of $200,000, additional paid-in capital of $300,000, and retained earnings of $100,000. On January 1, 20X4, Johe Company acquired control of Broadway in a business combination.
Required:
Give the Consolidation entry that would be needed in preparing a consolidated balance sheet immediately following the combination if Johe acquired all of Broadway’s outstanding common stock for $600,000.
Expert Solution
PFA
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