On January 1, 20X9, Parent Corporation acquired 90 percent of Small Corporation's stock for $315,000 cash....

On January 1, 20X9, Parent Corporation acquired 90 percent of Small Corporation's stock for $315,000 cash. At that date, the fair value of the noncontrolling interest was $35,000, and small reported common stock outstanding of $150,000 and retained earnings of $180,000. The differential is assigned to a patent with a remaining life of eight years. Each year since acquisition, small has reported income from operations of 50,000 and paid dividend of $30,000.

Small acquired 75 percent ownership of cherry company on January 1, 20x9 for 187,500. at that date, fair value of the noncontrolling interest was 62,500, and cherry reported common stock outstanding of $100,000 and retained earnings of $130,000. In 20x9, cherry reported net income of $20,000 and paid dividends of $8,000. the differential is assigned to building and equipment with an economic life of 10 years at the date of acquisition.

required: prepare the journal entries recorded by small for its investment in cherry during 20x9.

Solutions

Expert Solution

As per the given information the following are the journal entries by small
investment in cherry corporation


Date	Account titles and explanation	Debit($)	Credit($)

Januray 1, 2019	Investment	187500
	Cash		187500
	(Being amount paid for investment
	in cherry company)

2019	Investment	15000
	Investment Income		15000
	(Being to record the proportionate income
	from the investment)
2019	Cash	6000
	Investment		6000
	(Being to record the dividend
	received)

Explanation for the above journal entries:

The small company acquires 75% of cherry company shares for $ 187500 for that
the small company pays $ 187500 in cash.
The net income of cherry is $ 20000 in which the small company has 75% ownership i.e., 15000
Because of this income the investment increases.
From the net income of $ 20000 the cherry company pays a dividend of $ 8000. So the share of
small company in $ 8000 is 6000. So, the amount of dividend $ 6000 received in cash the
inestment will be decreased.

ekkarill92 answered 8 months ago

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