Question
Padilla Company acquired 80% of the outstanding common stock of Skon Company on January 1, 2012, for $132,000. At the date of purchase, Skon Company
Padilla Company acquired 80% of the outstanding common stock of Skon Company on January 1, 2012, for $132,000. At the date of purchase, Skon Company had a balance in its $2 par value common stock account of $120,000 and retained earnings of $30,000. On January 1, 2014, Skon Company issued 15,000 shares of its previously unissued stock to noncontrolling stockholders for $3.00 per share. On this date, Skon Company had a retained earnings balance of $50,500. The difference between implied and book values relates to subsidiary land. No dividends were paid in 2014. Skon Company reported income of $10,000 in 2014.
Required:
A. Prepare the journal entry on Padilla’s books to record the effect of the issuance assuming
(1) Cost method
(2) Complete or partial equity method
B. Prepare the eliminating entries needed for the preparation of a consolidated statements workpaper on December 31, 2014 assuming
(1) Cost method
(2) Complete or partial equity method
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