Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

P2-8 Computations and journal entries with excess of book value over fair value Sun Corporation became a subsidiary of Pam Corporation on July 1, 2016,

P2-8 Computations and journal entries with excess of book value over fair value

Sun Corporation became a subsidiary of Pam Corporation on July 1, 2016, when Pam paid $1,980,000 cash for 90 percent of Sun's outstanding common stock. The price paid by Pam reflected the fact that Sun's inventories were undervalued by $50,000, and Sun's plant assets were overvalued by $500,000. Sun sold the undervalued inventory items during 2016 but continues to hold the overvalued plant assets that had a remaining useful life of nine years from July 1, 2016.

During the years 2016 through 2018, Sun's paid-in capital consisted of $1,500,000 capital stock and $500,000 additional paid-in capital. Sun's retained earnings statements for 2016, 2017, and 2018 were as follows (in thousands):

Year Ended December 31, 2016;Year Ended December 31, 2017;Year Ended December 31, 2018

Retained earnings January 1 Add: $525 $600 $700

Net income Deduct: $250 $300 $200

Dividends (declared in December) (175) (200) (150)

Retained earnings December 31 $600 $700 $750

Pam uses the equity method in accounting for its investment in Sun.

REQUIRED

1. Compute Pam's income from its investment in Sun for 2016. 2. Determine the balance of Pam's Investment in Sun account at December 31, 2017. 3. Prepare the journal entries for Pam to account for its investment in Sun for 20

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Operational Risk Management

Authors: Mark D Abkowitz

1st Edition

0470256982, 9780470256985

More Books

Students also viewed these Accounting questions

Question

3. What is my goal?

Answered: 1 week ago

Question

2. I try to be as logical as possible

Answered: 1 week ago