Question

In: Accounting

Play Company acquired 70 percent of Screen Corporation's shares on December 31, 20x5, at underlying book...

Play Company acquired 70 percent of Screen Corporation's shares on December 31, 20x5, at underlying book value of $98,000. At the date, fair value of the noncontrolling interest was equal to 30 percent of the book value of Screen Corporation. Screen's balance sheet on January 1, 20x8, contained the following balances:

Cash 50,000

Accounts Receivable 35,000

Inventory 40,000

Building/Equipment 300,000

Less:Accumulated Depreciation (100,000)

Total Assets 325,000

Accounts Payable 40,000

Bonds Payable     100,000

Common Stock 50,000

Additional Paid-In Capital 75,000

Retained Earnings 60,000

Total Liabilities and Equities 325,000

On January 1, 20x8, Screen acquired 5,000 of its own $2 par value common shares from Nonaffiliated Corporation for $6 per share.

1. Based on the preceding information, what is the increase in the book value of the equity attributable to the parent as a result of the repurchase of shares by Screen Corporation?

2. Based on the preceding information, what will the journal entry to be recorded on Play Company's books to recognize the change in the book value of the shares it holds?

Solutions

Expert Solution

1. As on Jan 1, 20x8 before the repurchase, the below is the balance sheet provided and the share of Play Company is given below:

Assets Amount $ Liabilities Amount $
Cash             50,000 Stock                              50,000
Account Receivable             35,000 Addl Paid up Capital                              75,000
Inventory             40,000 Retained Earnings                              60,000
Building          3,00,000 Acc Payable                              40,000
Less Acc Dep        (1,00,000) Bonds Payable                           1,00,000
Total          3,25,000 Total                           3,25,000
Net book value                           1,85,000
Share of Play Company- 70%                           1,29,500

After the repurchase of shares , $ 30,000 is spent by Screen for the buy back. The revised balance sheet and the share of Play company is given below. The Share of Play company increases due to the repurchase to 87.5%.

Assets Amount $ Liabilities Amount $
Cash             20,000 Stock                              40,000
Account Receivable             35,000 Addl Paid up Capital                              55,000
Inventory             40,000 Retained Earnings                              60,000
Building          3,00,000 Acc Payable                              40,000
Less Acc Dep        (1,00,000) Bonds Payable                           1,00,000
Total         2,95,000 Total                           2,95,000
Net book value                           1,55,000
Share of Play Company (87.5%)                             1,35,625
Increase                                6,125

Hence the increase in the book value is $ 6,125.

2. If Play Company is using equity method of accoutning and since they have not contributed any cash for increasing the stake in the company, no journal entries will be required to be passed in their books with respect to the investment account.

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

On December 31, 2009, Add-On Company acquired 100 percent of the common shares of Venus Corporation...
On December 31, 2009, Add-On Company acquired 100 percent of the common shares of Venus Corporation for $ 300,000. Information about the Venus balance just before the acquisition is given here: Cash and Accounts Receivable...............$ 35,000 Inventory .................................................$75,000 Land ........................................................$100,000, Buildings and Equipment (net) ................$220,000 Total Assets .........................................$ 430,000 Accounts Payable ....................................$ 65,000 Bonds Payable ................................... $150,000 Common Stock .........................................$100,000 Retained earnings ...................................$115,000 Total Liabilities and Stockholders'Equity$ 430,000 At the date of the business combination, the net assets and liabilities...
Plexis Corporation holds 70 percent of Solar Company's voting common shares, acquired at book value, but...
Plexis Corporation holds 70 percent of Solar Company's voting common shares, acquired at book value, but none of its preferred shares. At the date of acquisition, the fair value of the noncontrolling interest was equal to 30 percent of the book value of Solar Company. Summary balance sheets for the companies on December 31, 20X5, are as follows: Plexis Corp. Solar Company Cash and Receivables $ 70,000 $ 55,000 Inventory 60,000 35,000 Buildings and Equipment (net) 180,000 160,000 Investment in...
Bristle Corporation acquired 75 percent of Silver Corporation's common stock on December 31, 20X8, for $300,000....
Bristle Corporation acquired 75 percent of Silver Corporation's common stock on December 31, 20X8, for $300,000. The fair value of the noncontrolling interest at that date was determined to be $100,000. Silver's balance sheet immediately before the combination reflected the following balances: Cash and Receivables$40,000 Inventory70,000 Land90,000 Buildings and Equipment (net)    250,000 Total Assets  $450,000 Accounts Payable$30,000 Income Taxes Payable40,000 Bonds Payable100,000 Common Stock100,000 Retained Earnings    180,000 Total Liabilities and Stockholders' Equity  $450,000 A careful review of the fair value of Silver's assets and...
Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1,...
Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1, 2018. Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1, 2018. At that date, Salt reported common stock outstanding of $1,050,000 and retained earnings of $840,000; the fair value of the noncontrolling interest was equal to 20 percent of the book value of Salt Company. Salt Co. sold equipment to Pepper Co. for a $720,000 on December...
Peanut Company acquired 75 percent of Snoopy Company's stock at underlying book value on January 1,...
Peanut Company acquired 75 percent of Snoopy Company's stock at underlying book value on January 1, 20X8. At that date, the fair value of the noncontrolling interest was equal to 25 percent of the book value of Snoopy Company. Snoopy Company reported shares outstanding of $350,000 and retained earnings of $100,000. During 20X8, Snoopy Company reported net income of $60,000 and paid dividends of $3,000. In 20X9, Snoopy Company reported net income of $90,000 and paid dividends of $15,000. The...
Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1,...
Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1, 2018. Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1, 2018. At that date, Salt reported common stock outstanding of $1,050,000 and retained earnings of $840,000; the fair value of the noncontrolling interest was equal to 20 percent of the book value of Salt Company. Salt Co. sold equipment to Pepper Co. for a $720,000 on December...
Question 10 Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on...
Question 10 Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1, 2018. At that date, Salt reported common stock outstanding of $1,050,000 and retained earnings of $840,000; the fair value of the noncontrolling interest was equal to 20 percent of the book value of Salt Company. Salt Co. sold equipment to Pepper Co. for a $720,000 on December 31, 2018. Salt Co. had originally purchased the equipment for $800,000 on January 1, 2015,...
Peanut Company acquired 75 percent of Snoopy Company's stock at underlying book value on January 1,...
Peanut Company acquired 75 percent of Snoopy Company's stock at underlying book value on January 1, 20X8. At that date, the fair value of the noncontrolling interest was equal to 25 percent of the book value of Snoopy Company. Snoopy Company reported shares outstanding of $350,000 and retained earnings of $100,000. During 20X8, Snoopy Company reported net income of $60,000 and paid dividends of $3,000. In 20X9, Snoopy Company reported net income of $90,000 and paid dividends of $15,000. The...
Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1,...
Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1, 2018. At that date, Salt reported common stock outstanding of $1,050,000 and retained earnings of $840,000; the fair value of the noncontrolling interest was equal to 20 percent of the book value of Salt Company. Salt Co. sold equipment to Pepper Co. for a $720,000 on December 31, 2018. Salt Co. had originally purchased the equipment for $800,000 on January 1, 2015, with a...
Pepper Company acquired 90 percent of Salt Company's stock at underlying book value on January 1,...
Pepper Company acquired 90 percent of Salt Company's stock at underlying book value on January 1, 20X8. At that date, the fair value of the non-controlling interest was equal to 10 percent of the book value of Salt Company. Salt Co. sold equipment to Pepper Co. for a $360,000 on December 31, 20X8. Salt Co. had originally purchased the equipment for $400,000 on January 1, 20x5, with a useful life of 10 years and no salvage value. At the time...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT