On January 1, 2013, Purdy Company acquired 84% of the capital stock of Sally Company for $840,000.

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On January 1, 2013, 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, 2015, 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 2013 and 2014.

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 work paper 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...
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Advanced Accounting

ISBN: 978-1119119364

6th edition

Authors: Debra Jeter, Paul Chaney

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