Poco Company purchased 85% of the outstanding common stock of Serena Company on December 31, 2009, for

Question:

Poco Company purchased 85% of the outstanding common stock of Serena Company on December 31, 2009, for $310,000 cash. On that date, Serena Company’s stockholders’ equity consisted of the following:

Common stock...........$240,000

Other contributed capital......55,000

Retained earnings...........50,000

..................$345,000

During 2012, Serena Company distributed a dividend in the amount of $12,000 and at year-end reported a net loss of $10,000. During the time that Poco Company has held its investment in Serena Company, Serena Company’s retained earnings balance has decreased $29,500 to a net balance of $20,500 after closing on December 31, 2012. Serena Company did not declare or distribute any dividends in 2010 or 2011. The difference between book value and the value implied by the purchase price relates to goodwill.

Required:

A. Assume that Poco Company uses the equity method. Prepare in general journal form the entries needed in the preparation of a consolidated statements workpaper on December 31, 2012. Explain why the partial and complete equity methods would result in the same entries in this instance.

B. Assume that Poco Company uses the cost method. Prepare in general journal form the entries needed in the preparation of a consolidated statements workpaper on December 31, 2012.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... 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...