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Category > Accounting Posted 22 Jul 2017 My Price 11.00

Cost Method

Parent Company Entries—Multiple Stock Purchase and Sale of Stock, Cost Method

Papke Company acquired 85% of the common stock of Serbin Company in two separate cash transactions. The first purchase of 72,000 shares (60%) on January 1, 2010, cost $490,000. The second purchase, on January 1, 2011, of 30,000 shares (25%) cost $220,000. Serbin Company"s stockholders" equity was as follows:

 

2010

2011

Common Stock, $5 par

$600,000

$600,000

Retained Earnings, 1/1

175,000

201,000

Net Income

46,000

60,000

Dividends Declared, 9/30

(20,000)

(25,000)

Retained Earnings, 12/31

201,000

236,000

Total Stockholders" Equity, 12/31

$801,000

$836,000

On April 1, 2011, after a significant rise in the market price of Serbin Company"s stock, Papke Company sold 21,600 of its Serbin Company shares for $260,000. Serbin Company notified Papke Company that its net income for the first three months was $15,000. The shares sold were identified as those obtained in the first purchase. Any difference between implied and book values relates to goodwill. Papke uses the cost method to account for its investment in Serbin Company.

Required:

Prepare the journal entries Papke Company would record on its books during 2011 to account for its investment in Serbin Company.Parent Company Entries—Multiple Stock Purchase and Sale of Stock, Cost Method

Papke Company acquired 85% of the common stock of Serbin Company in two separate cash transactions. The first purchase of 72,000 shares (60%) on January 1, 2010, cost $490,000. The second purchase, on January 1, 2011, of 30,000 shares (25%) cost $220,000. Serbin Company"s stockholders" equity was as follows:

 

2010

2011

Common Stock, $5 par

$600,000

$600,000

Retained Earnings, 1/1

175,000

201,000

Net Income

46,000

60,000

Dividends Declared, 9/30

(20,000)

(25,000)

Retained Earnings, 12/31

201,000

236,000

Total Stockholders" Equity, 12/31

$801,000

$836,000

On April 1, 2011, after a significant rise in the market price of Serbin Company"s stock, Papke Company sold 21,600 of its Serbin Company shares for $260,000. Serbin Company notified Papke Company that its net income for the first three months was $15,000. The shares sold were identified as those obtained in the first purchase. Any difference between implied and book values relates to goodwill. Papke uses the cost method to account for its investment in Serbin Company.

Required:

Prepare the journal entries Papke Company would record on its books during 2011 to account for its investment in Serbin Company.

Answers

Maurice Tutor
(5)
Status NEW Posted 22 Jul 2017 06:07 PM My Price 11.00

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