Pet Corporation owns 100 percent (300,000 shares) of the outstanding shares of Sap Corporations common stock on

Question:

Pet Corporation owns 100 percent (300,000 shares) of the outstanding shares of Sap Corporation’s common stock on January 1, 2011. Its Investment in Sap account on this date is $4,400,000, equal to Sap’s $4,000,000 stockholders’ equity plus $400,000 goodwill. During 2011, Sap reports net income of $600,000 and pays no dividends. On April 1, 2011, Pet sells a 15 percent interest (45,000 shares) in Sap for $750,000, thereby reducing its holdings to 85 percent.

REQUIRED: Prepare the journal entries needed for Pet to account for its investment in Sap for 2011, using a beginning-of-the-period sales assumption.

Common Stock
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