Liquidating Dividend
On January 1, 2011, Pacelli Company acquired a 90% interest in Swartz Corporation for $720,000. On this date, Swartz Corporation reported common stock of $500,000 and retained earnings of $200,000. Any difference between implied and book value interest acquired is attributable to the under- or overvaluation of land.
Other information pertaining to Swartz Corporation follows:
|
2011 Net income |
$65,000 |
|
2011 Cash dividends |
90,000 |
|
2012 Net income |
80,000 |
|
2012 Cash dividends |
40,000 |
Pacelli Company uses the partial equity method to account for its investment in Swartz Corporation.
Required:
- Prepare the general journal entries for 2011 and 2012 to record the receipt of the cash dividends.
- Prepare all determinable workpaper entries that would be made in the preparation of 2011 consolidated statements workpaper.
- Prepare all determinable workpaper entries that would be made in the preparation of consolidated statements for 2012.
- How would the entry in part A change if the cost method was used to account for the investment?