On January 1, 2011, Perelli Company purchased 90,000 of the 100,000 outstanding shares of common stock...

On January 1, 2011, Perelli Company purchased 90,000 of the 100,000 outstanding shares of common stock of Singer Company as a long-term investment. The purchase price of $5,003,400 was paid in cash. At the purchase date, the balance sheet of Singer Company included the following:

Current assets		$2,904,100
Long-term assets		3,888,100
Other assets		764,000
Current liabilities		1,547,100
Common stock, $20 par value		2,001,400
Other contributed capital		1,888,600
Retained earnings		1,612,000

Additional data on Singer Company for the four years following the purchase are:

	*2011*	*2012*	*2013*		*2014*
Net income (loss)	$2,000,500	$478,300	($180,500	)	($321,700	)
Cash dividends paid, 12/30	497,800	497,800	497,800		497,800

Prepare journal entries under each of the following methods to record the purchase and all investment-related subsequent events on the books of Perelli Company for the four years, assuming that any excess of purchase price over equity acquired was attributable solely to an excess of market over book values of depreciable assets (with a remaining life of 15 years). (Assume straight-line depreciation.)

(b)

Perelli uses the partial equity method to account for its investment in Singer. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.

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Expert Solution

Answer:-

Date	Particular	Debit	Credit
2011	Investment in singer company	5003400
	Cash		5003400
	(Record the initial investment in singer company)
	Investment in singer company (2000500*.9)	1800450
	Equity in subsidiary income		1800450
	(Record perellie share of subsidiary income)
	Cash (497800*.9)	448020
	Investment in singer company		448020
	(Record dividend received)
2012	Investment in singer company (478300*.9)	430470
	Equity in subsidiary income		430470
	(Record the initial investment in singer company)
	Cash (497800*.9)	448020
	Investment in singer company		448020
	(Record dividend received)
2013	Equity in subsidiary-loss (180500*.9)	162450
	Investment in singer company		162450
	(Record perellie share of subsidiary-loss)
	Cash (497800*.9)	448020
	Investment in singer company		448020
	(Record dividend received)
2014	Equity in subsidiary-loss (321700*.9)	289530
	Investment in singer company		289530
	(Record perellie share of subsidiary-loss)
	Cash (497800*.9)	448020
	Investment in singer company		448020
	(Record dividend received)

ekkarill92 answered 1 year ago

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