Promise Enterprises acquired 80 percent of Brown Corporation’s voting common sto
ID: 2579194 • Letter: P
Question
Promise Enterprises acquired 80 percent of Brown Corporation’s voting common stock on January 1, 20X3, for $376,000. At that date, the fair value of the noncontrolling interest of Brown Corporation was $94,000. Immediately after Promise acquired its ownership, Brown purchased 70 percent of Tann Company’s stock for $185,500. The fair value of the noncontrolling interest of Tann Company was $79,500 at that date. During 20X3, Promise reported operating income of $270,000 and paid dividends of $90,000. Brown reported operating income of $160,000 and paid dividends of $50,000. Tann reported net income of $60,000 and paid dividends of $10,000. At January 1, 20X3, the stockholders’ equity sections of the balance sheets of the companies were as follows:
Prepare the journal entries recorded by Brown for its investment in Tann during 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Prepare the journal entries recorded by Promise for its investment in Brown during 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Prepare the consolidation entries related to Brown’s investment in Tann and Promise’s investment in Brown that are needed in preparing consolidated financial statements for Promise and its subsidiaries at December 31, 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
References
eBook & Resources
Promise Enterprises acquired 80 percent of Brown Corporation’s voting common stock on January 1, 20X3, for $376,000. At that date, the fair value of the noncontrolling interest of Brown Corporation was $94,000. Immediately after Promise acquired its ownership, Brown purchased 70 percent of Tann Company’s stock for $185,500. The fair value of the noncontrolling interest of Tann Company was $79,500 at that date. During 20X3, Promise reported operating income of $270,000 and paid dividends of $90,000. Brown reported operating income of $160,000 and paid dividends of $50,000. Tann reported net income of $60,000 and paid dividends of $10,000. At January 1, 20X3, the stockholders’ equity sections of the balance sheets of the companies were as follows:
Explanation / Answer
a) Brown Corporation on its investment in Tann Company 1) Record purchase of Tann Company stock Investment in Tann Company Stock $185,500 Cash $185,500 2) Record dividends from Tann Company Cash ($10,000 x 70%) $7,000 Investment in Tann Company Stock $7,000 3) Record equity-method income Investment in Tann Company Stock $42,000 Income from Tann Company ($60,000 x 70%) $42,000 b) Promise Enterprises on its investment in Brown Corporation 1) Record purchase of Brown Corporation stock Investment in Brown Corporation Stock $376,000 Cash $376,000 2) Record dividends from Brown Corporation Cash ($50,000 x 80%) $40,000 Investment in Brown Corporation Stock $40,000 3) Record equity-method income Investment in Brown Corporation Stock $161,600 Income from Brown Corporation $161,600 ($160,000 + $42000) x 80% c) Common Stock $140,000 Additional Paid-In Capital $80,000 Retained Earnings $45,000 Income from Tann Co. $42,000 NCI in NI of Tann Co ($60,000 x 30%) $18,000 Dividends declared $10,000 Investment in Tann Co. $220,500 NCI in NA of Tann Co. $94,500 NCI 30% Brown 70% = Common Stock + Additional Paid-In Capital + Retained Earnings Original book value $79,500 $185,500 = $140,000 $80,000 $45,000 + Net Income $18,000 $42,000 $60,000 - Dividends -$3,000.00 -$7,000 -$10,000 Ending book value $94,500 $220,500 $140,000 $80,000 $95,000 Common Stock $210,000 Additional Paid-In Capital $70,000 Retained Earnings $190,000 Income from Brown Corp $161,600 NCI in NI of Brown Corp $40,400 Dividends declared 50000 Investment in Brown Corp $497,600 NCI in NA of Brown Corp $124,400 NCI 20% Promise 80% = Common Stock + Additional Paid-In Capital + Retained Earnings Original book value $94,000 $376,000 = $210,000 $70,000 $190,000 + Net Income $40,400 $161,600 $202,000 - Dividends -$10,000 -$40,000 -$50,000 Ending book value $124,400 $497,600 $210,000 $70,000 $342,000
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