Elimination Entries for Multilevel Ownership

Promise Enterprises acquired 90 percent of Brown Corporation’s voting common stock on January 1, 20X3, for $315,000. At that date, the fair value of the noncontrolling interest of Brown Corporation was $35,000. Immediately after Promise acquired its ownership, Brown purchased 60 percent of Tann Company’s stock for $120,000. The fair value of the noncontrolling interest of Tann Company was $80,000 at that date. During 20X3, Promise reported operating income of $200,000 and paid dividends of $80,000. Brown reported operating income of $120,000 and paid dividends of $50,000. Tann reported net income of $40,000 and paid dividends of $15,000. At January 1, 20X3, the stockholders’ equity sections of the balance sheets of the companies were as follows:

Â	Promise	Brown	Tann
Â	Enterprises	Corporation	Company
Common Stock	$200,000	$150,000	$100,000
Additional Paid-In Capital	160,000	60,000	60,000
Retained Earnings	360,000	140,000	40,000
Total Stockholders’ Equity	$720,000	$350,000	$200,000

Required

a. Prepare the journal entries recorded by Brown for its investment in Tann during 20X3.

b. Prepare the journal entries recorded by Promise for its investment in Brown during 20X3.

c. Prepare the elimination entries related to Brown’s investment in Tann and Promise’s investment in Brown that are needed in preparing consolidated financial statements for Promise and its subsidiaries at December 31, 20X3.