The information shown is available regarding the investments of Billings Corporation in Channel Company for the years 2011€“2015.

The stockholders€™ equity section of Channel Company€™s balance sheet has not changed since the January 1, 2010, original sale of preferred stock to the public, except for the balance in the retained earnings account. The stockholders€™ equity as of January 1, 2013, is as follows:
6% Cumulative preferred stock ($50 par, liquidation value equals par value) . $ 50,000
Common stock ($10 par) ....................... 100,000
Paid-in capital in excess of par ................... 20,000
Retained earnings ......................... 103,000
Total stockholders€™ equity ...................... $273,000
Other relevant facts are as follows:
a. On January 1, 2011, Channel has a $60,000 retained earnings balance and there are no dividends in arrears on the preferred stock.
b. Any excess of cost over book value on the investment in common stock is viewed as goodwill.
c. The 10% interest sold on January 1, 2016, is the interest purchased on January 1, 2011.
d. Channel Company income and dividends are as follows for 2011€“2015:

Billings€™s investment account bala Investment in preferred stock:
Original cost ................. $ 30,000
Plus dividends in arrears for 2014 ....... 1, 800
Balance, December 31, 2015 ........... 31,800
Investment in common stock:
January 1, 2011, purchase ................... $ 25,000
January 1, 2013, purchase ................... 140,000
2013 Channel income ($30,000 x 60%) .............. 18,000
2013 Channel dividends ($5,000 x 60%) ............. (3,000)
2014 Channel income ($25,000 x 60%) ............... 15,000
January1, 2015 purchase ..................... 60,000
2015 Channel income ($20,000 x 80%) ............... 16,000
December 31, 2015, sale .................... (35,000)
Balance, December 31, 2015 ................... $236,000
Required
Assume the investment accounts are to be properly maintained under the simple equity method. Prepare all necessary correcting entries on the books of Billings Corporation as of January 1, 2016. (Assume nominal accounts are open.) All supporting computations and schedules should be in good form.

Transcribed Image Text:

Transaction Interest Price Date $25,000 10% 60 50 20 10 30,000 140,000 60,000 (35,000) Net Income Preferred Dividends Common Dividends None $25,000 30,000 30,000 25,000 20,000 $3,000 3,000 3,000 None None $6,000 2014 2015... 5,000 None None