On January 1, 2011, Tibor Company acquires 90% of the outstanding stock of Largo Company for $800,000.

Question:

On January 1, 2011, Tibor Company acquires 90% of the outstanding stock of Largo Company for $800,000. At the time of the acquisition, Largo Company has the following stockholders’ equity:
Common stock ($10 par) ....... $300,000
Paid-in capital in excess of par ...... 150,000
Retained earnings .......... 200,000
Total stockholders’ equity ........ $650,000
It is determined that Largo Company’s book values approximate fair values as of the purchase date. Any excess of cost over book value is attributed to goodwill. On July 1, 2011, Largo Company distributes a 10% stock when the fair value of its is $30 per share. A cash of $0.50 per share is distributed on December 31, 2011. Largo Company’s net income for 2011 amounts to $108,000 and is earned evenly throughout the year.
1. Prepare the entry required on Largo Company’s books to reflect the stock distributed on July 1, 2011. Prepare the stockholders’ equity section of the Largo Company as of December 31, 2011.
2. Prepare the simple equity method entries that Tibor Company would make during 2011 to record its investment in Largo Company.
3. Prepare the eliminations that would be made on the December 31, 2011, consolidated worksheet. (Assume the use of the simple equity method.) Prepare a determination and of excess schedule to support the elimination.
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