New Subsidiary Shares Issued to Outsider
On January 1, 2010, Purdy Company acquired 84% of the capital stock of Sally Company for $840,000. On that date, Sally Company”s stockholders” equity was:
|
Common Stock, $20 par |
$600,000 |
|
Other Contributed Capital |
200,000 |
|
1/1 Retained Earnings |
160,000 |
|
Total |
$960,000 |
The difference between implied and book values relates to land owned by Sally Company.
On January 2, 2012, Sally Company issued 6,000 shares of its authorized capital stock, with a market value of $55 per share, to Marcy Smith in exchange for a patent. Sally Company”s retained earnings balance on this date was $400,000, capital stock and other contributed capital balances had not changed during 2010 and 2011.
Required:
- Prepare (1) the entry on Purdy”s books to record the effect of the issuance, and (2) the elimination entries for the preparation of a consolidated balance sheet workpaper immediately after the new issue of shares assuming use of the cost method.
- Assuming that the market value of the new shares issued was $34 per share, repeat requirement A above.