Question
Pure Company acquired 80% of the outstanding common stock of Saxxon Company on January 2, 2016 for $675,000. At that time, Saxxons total stockholders equity
Pure Company acquired 80% of the outstanding common stock of Saxxon Company on January 2, 2016 for $675,000. At that time, Saxxons total stockholders equity amounted to $1,000,000. Saxxon Company reported net income and dividends for the last two years as follows:
2016 2017
Reported net income$45,000 $60,000
Dividends distributed 35,000 75,000
Required:
Prepare journal entries for Pure Company for 2016 and 2017 assuming Pure uses:
A. The cost method to record its investment
B. The complete equity method to record its investment. The difference between implied value and the book value of equity acquired was attributed solely to a building, with a 20-year expected life.
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