On January 2, 2014, U. S. Grant Corp. purchased 24,000 shares (40%) of the commo

Question

On January 2, 2014, U. S. Grant Corp. purchased 24,000 shares (40%) of the common stock of R. E. Lee & Company. The purchase price was $480,000. Grant has significant influence over Lee. No amortization is required. During 2014, Lee reported income of $120,000 and paid dividends of $48,000. On January 2, 2015 Grant sold 3,000 shares for $75,000. Required: Compute the balance in Equity Investment at December 31,2014. Prepare the journal entry to record the sale of the 3,000 shares. What was the balance in Equity Investment after the shares were sold? 2. On January 1,2015, Parent Company purchased all of the common stock of Subsidiary Company for $350,000 cash. On that date, Subsidiary had common stock of $20,000, additional paid-in capital of $80,000, and retained earnings of $150,000. The difference between the cost of the purchase and the book value of Subsidiary's net assets was at least partly due to under or overvalued assets and liabilities. Inventory was undervalued by $5,000. Land was undervalued by $20,000. Buildings and Equipment were undervalued by $30,000. Bonds Payable was overvalued by $5,000. Any unexplained difference is due to Goodwill. Required: Prepare all necessary entries for a January 1,2015, consolidated balance sheet.

Explanation / Answer

                     1.00 US Grant Corp Date Details of Investment Amt $ Jan 2.2014. Invetsment in R E Lee & Co               480,000.00 Add : 40% share of RE Lee income during 2014                 48,000.00 Less: 40% of cash dividends of RE Lee & Co in 2014.               (19,200.00) Dec 31.2014 Investment value in R E Lee & Co               508,800.00 b On Jan 2.2015. 3000 share=1/8th of investment sold Journal Entry Date Account Title Dr $ Cr $ Jan 2.2015. Cash                 75,000.00 Investment          63,600.00 Gain on sale of Investment          11,400.00                      2.00 Details Amt $ Purchase cost               350,000.00 common stock                 20,000.00 Additional paid in capital                 80,000.00 Retained earning               150,000.00 Net assets acquired               250,000.00 Fair value adjustment Inventory                   5,000.00 Land                 20,000.00 Building & Equipment                 30,000.00 Total asset fair value uplift                 55,000.00 Bond payable fair value reduced                   5,000.00 Net Asset fair value adjustment                 60,000.00 So Net asset acquired               250,000.00 Fair value adjustment                 60,000.00 Goodwill recognized                 40,000.00 Consolidation Journal Entry Date Account Title Dr $ Cr $ 1-Jan Net Assets in Subsidiary               250,000.00 Fair value adjustment in subsidiary Inventory                   5,000.00 Land                 20,000.00 Building & Equipment                 30,000.00 Goodwill                 40,000.00 Bond fair value                   5,000.00 Cash       350,000.00

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