Playtown Corporation purchased 75 percent of Sandbox Company common stock and 40 percent of its preferred stock

Question:

Playtown Corporation purchased 75 percent of Sandbox Company common stock and 40 percent of its preferred stock on January 1, 20X6, for $270,000 and $80,000, respectively. At the time of purchase, the fair value of Sandbox’s common shares held by the noncontrolling interest was $90,000. Sandbox’s balance sheet contained the following balances:


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For the year ended December 31, 20X6, Sandbox reported net income of $70,000 and paid dividends of $50,000 (which includes the preferred dividend). The preferred stock is cumulative and pays an annual dividend of 8 percent.



Required


a. Prepare the journal entries recorded by Playtown for its investments in Sandbox during 20X6.


b. Present the consolidation entries needed to prepare the consolidated financial statements for Playtown Corporation as of December 31, 20X6.

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Advanced Financial Accounting

ISBN: 9781260772135

13th Edition

Authors: Theodore Christensen, David Cottrell, Cassy Budd

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