Question
On January 1, 2013, Carlos Corporation purchases 90% (18,000 shares) of the outstanding common stock of Dower Company for $504,000. Just prior to Carlos Corporations
On January 1, 2013, Carlos Corporation purchases 90% (18,000 shares) of the outstanding common stock of Dower Company for $504,000. Just prior to Carlos Corporations purchase, Dower Company has the following stockholders equity:
Common stock ($5 par) | $100,000 |
Paid-in capital in excess of par | 300,000 |
Retained earnings | 100,000 |
Total stockholders equity | $500,000 |
At this time, Dower Companys book values approximate fair values except for buildings with a 20-year life.
On January 1, 2017, Dower Companys retained earnings balance amounts to $200,000. No changes have taken place in the paid-in capital in excess of par accounts since the original sale of common stock on July 10, 2010.
On July 1, 2017, Carlos Corporation sells 2,000 of its Dower Company shares to Tanner Corporation for $100,000. At the time of this sale, Carlos has no intention of selling the balance of its holding in Dower Company.
In an unexpected move on December 31, 2017, Carlos Corporation sells its remaining 80% interest in Dower Company to Tanner Corporation for $540,000.
Dower Companys reported income and dividends for 2017 are as follows:
| Income | Dividends |
---|---|---|
January 1, 2017July 1, 2017 | $30,000 | $0.50/share |
July 1, 2017December 31, 2017 | 40,000 | 0.50/share |
Required
Prepare the determination and distribution of excess schedule for Carlos Corporations purchase of Dower Company common stock on January 1, 2013. Then, prepare all the entries on Carloss books needed to reflect the changes in its investment account from January 1, 2017, to December 31, 2017. (Assume Carlos uses the cost method to report its investment in Dower Company.)
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