In: Accounting
Stage Company operates on a calendar-year basis, reporting its
results of operations quarterly. For the first quarter of 20X1,
Stage reported sales of $244,000 and operating expenses of $184,000
and paid dividends of $13,000. On April 1, 20X1, Parachute Theaters
Inc. acquired 85 percent of Stage’s common stock for $765,000. At
that date, the fair value of the noncontrolling interest was
$135,000, and Stage had 100,000 outstanding shares of $1 par common
stock, originally issued at $6 per share. The differential is
related to goodwill. On December 31, 20X1, the management of
Parachute Theaters reviewed the amount attributed to goodwill as a
result of its purchase of Stage common stock and concluded that
goodwill was not impaired.
Stage’s retained earnings statement for the full year 20X1 appears
as follows:
Retained Earnings, January 1, 20X1 | $ | 141,000 | ||
Net Income | 166,000 | |||
Dividends | (35,000 | ) | ||
Retained Earnings, December 31, 20X1 | $ | 272,000 | ||
Parachute Theaters accounts for its investment in Stage using the
equity method.
Required:
a. Present all entries that Parachute Theaters would have recorded
in accounting for its investment in Stage during 20X1. (If
no entry is required for a transaction/event, select "No journal
entry required" in the first account field.)
A
Record the purchase of Stage Company stock.
B
Record the equity-method income.
C
Record the dividends from Stage Company.
b. Present all consolidation entries needed in a worksheet to prepare a complete set of consolidated financial statements for the year 20X1.
A
Record the preacquisition income and dividends consolidation entry.
B
Record the basic consolidation entry.
C
Record the excess value (differential) reclassification entry.