On 2010 January 1, Long Company acquired 80 percent of the outstanding voting common stock of Fall Company for USD 4,032,000 cash. Long Company uses the equity method. During 2010, Fall reported USD 672,000 of net income and paid USD 288,000 in dividends. The stockholders” equity section of the 2009 December 31, balance sheet for Fall follows:
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Stockholders” equity: |
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Paid-in capital: |
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Common stock – $42 par |
$4,200,000 |
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Retained earnings |
840,000 |
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Total stockholders” equity |
$5,040,000 |
a. Prepare the general journal entries to record the investment and the effect of Fall”s income and dividends on Long Company”s accounts.
b. Prepare the elimination entry that would be made on the work sheet for a consolidated balance sheet as of the date of acquisition.