Parent Company and Workpaper Entries—New Shares Issued by Subsidiary
On January 1, 2011, Pace Company purchased 250,000 shares of common stock directly from its subsidiary, Sime Company, for $1.50 per share. Noncontrolling stockholders elected not to participate in the new issue.
Pace Company acquired its initial 92.5% interest in Sime Company by purchasing on the open market 462,500 shares of Sime”s common stock for $578,125 on January 1, 2007. Sime Company”s stockholders” equity just before each of the two purchases was as follows:
|
December 31 |
December 31 |
||
|
2006 |
2010 |
||
|
Common Stock $1 par |
$500,000 |
$500,000 |
|
|
Other Contributed Capital |
40,000 |
40,000 |
|
|
Retained Earnings |
60,000 |
150,000 |
|
|
Total |
fat000 |
$690,000 |
|
During 2011 Sime Company reported $90,000 net income and declared a dividend in the amount of $30,000. Any difference between implied and book values relates to subsidiary land. Pace uses the cost method to account for its investment.
Required:
- Prepare the journal entry on Pace Company”s books to record the purchase of the additional shares on January 1, 2011.
- Prepare the eliminating entries needed for the preparation of a consolidated statements workpaper on December 31, 2011.