Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Partner Company acquired 85% of the common stock of Simplex Company in two separate cash transactions. The first purchase of 108,000 shares (60%) on January

  1. Partner Company acquired 85% of the common stock of Simplex Company in two separate cash transactions. The first purchase of 108,000 shares (60%) on January 1, 2015, cost $735,000. The second purchase, one year later, of 45,000 shares (25%) cost $330,000. Simplex Companys stockholders equity was as follows:

December 31 December 31

2015 2016

Common Stock, $5 par $ 900,000 $ 900,000

Retained Earnings, 1/1 263,000 302,000

Net Income 69,000 90,000

Dividends Declared, 9/30 (30,000) (38,000)

Retained Earnings, 12/31 302,000 354,000

Total Stockholders Equity, 12/31 $1,202,000 $1,254,000

On April 1, 2016, after a significant rise in the market price of Simplex Companys stock, Partner Company sold 32,400 of its Simplex Company shares for $390,000. Simplex Company notified Partner Company that its net income for the first three months was $22,000. The shares sold were identified as those obtained in the first purchase. Any difference between cost and book value relates to goodwill. Partner uses the partial equity method to account for its investment in Simplex Company.

Required:

A. Prepare the journal entries Partner Company will make on its books during 2015 and 2016 to account for its investment in Simplex Company.

B. Prepare the workpaper eliminating entries needed for a consolidated statements workpaper on December 31, 2016.

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

Step: 3

blur-text-image

Ace Your Homework with AI

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

Get Started

Students also viewed these Accounting questions

Question

Is conflict always unhealthy? Why or why not? (Objective 4)

Answered: 1 week ago