E 10-6

[Preferred stock] Journal entries, fair value/book value differentials Minang Corporation’s stockholder equity at December 31, 2016, is as follows (in thousands):

15% preferred stock, $100 par, cumulative, nonparticipating, with one year’s dividends in arrears $1,000 Common stock, $10 par 5,000 Other paid-in capital 600 Retained earnings 1,000 Total stockholders’ equity $7,600 Penang Corporation acquired a 50 percent (5,000 shares) interest in Minang’s preferred stock for $700,000 and acquired an 80 percent interest in Minang’s common stock for $5,600,000 on January 1, 2016.

REQuIRED 1. Prepare journal entries to record Penang’s 50 percent investment in Minang’s preferred stock.

2. Determine the fair value/book value differentials from Penang’s investment in Minang.