On January 1, 2010, Purdy Company acquired 84% of the capital stock of Sally Company for $840,000.

Question:

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:

Capital Stock, $20 par.........$600,000

Other Contributed Capital.....200,000

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 Com pany's retained earnings balance on this date was $400,000, capital stock and other con tributed capital balances had not changed during 2010 and 2011.

Required:

A. 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.

B. Assuming that the market value of the new shares issued was $34 per share, repeat requirement A above.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...