On January 1, 2015, Bear Corporation acquires a 60% interest in Kelly Company and an 80% interest

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On January 1, 2015, Bear Corporation acquires a 60% interest in Kelly Company and an 80% interest in Samco Company. The purchase prices are $225,000 and $250,000, respectively. The excess of cost over book value for each investment is considered to be goodwill.
Immediately prior to the purchases, Kelly Company and Samco Company have the following stockholders' equities:
On January 1, 2015, Bear Corporation acquires a 60% interest

Additional information:
a. Kelly Company and Samco Company have the following net incomes for 2015 through
2017 (incomes are earned evenly throughout the year):

On January 1, 2015, Bear Corporation acquires a 60% interest

b. Kelly Company has the following equity-related transactions for the first three years after it becomes a subsidiary of Bear Corporation:
July
1, 2015 . . . . . . . . . . . Sells 5,000 shares of its own stock at $20 per share. Bear purchases 3,000 of these shares.
December 31, 2016 . . . . . Pays a cash dividend of $1 per share.
July 1, 2017 . . . . . . . . . . . Purchases 5,000 shares of NCI-owned stock as treasury shares at $27 per share.
c. Samco Company has the following equity-related transactions for the first three years after it becomes a subsidiary of Bear Corporation:
December
31, 2015 . . Issues a 10% stock dividend. The estimated fair value of Samco common stock is $30 per share on the declaration date.
October 1, 2016. . . . . Sells 4,000 shares of its own stock at $30 per share. Of these shares, 200 are purchased by Bear.
d. Bear Corporation has $200,000 of additional paid-in capital in excess of par on December 31, 2017.
Required
Bear Corporation uses the cost method to account for its investments in subsidiaries. Convert its investments to the simple equity method as of December 31, 2017, and provide adequate support for the entries. Assume that the 2017 nominal accounts are closed. Prepare D&D schedules for each investment.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Advanced Accounting

ISBN: 978-1305084858

12th edition

Authors: Paul M. Fischer, William J. Tayler, Rita H. Cheng

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