The following balances were taken from the records of S Company: Common stock (1

Question

The following balances were taken from the records of S Company:

Common stock (1/1/11 and 12/31/11) $720,000
Retained earnings 1/1/11 $160,000
Net income for 2011 180,000
Dividends declared in 2011 (40,000)
Retained earnings, 12/31/11 300,000
Total stockholders' equity on 12/31/11 $1,020,000

P Company purchased 25% of S Company's common stock on January 1, 2011 for $300,000 for cash. The difference between implied value and book value is attributable to fixed assets with a remaining useful life on January 1, 2011 of ten years.

P can exert significant influence over S.

Required:

A. What is the journal entry to record the purchase of S Company?




B. What is the differential on the transaction




C. What journal entries will P record for S

Explanation / Answer

Cost of nvestment = 900,000

Equity (720000+ 160000)=660000

Difference= 240000

=======================

Implied value of the comaony (900,000 /.75) =1200 000

Book value(720 000 +160000)= 880000

Difference = 320000

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Non controlling interest in consolidated income

(.25 (180 000 –(320 000/10))) = 37 000

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Non controlling interest in net income

=   (.25 (1020 000 + (9/10) x 320 000)) = 327 000

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