On January 2, 2006, Pewter Corporation made the following nvestments: l-Acquired

Question

On January 2, 2006, Pewter Corporation made the following nvestments: l-Acquired for cash 80% of the 1000 shares of outstanding common stock of Stewart Company at $70 a share. The stockholder's equity of Stewart on January 2,2006 consisted of the following Common stock, no par or stated value Retained earnings S50000 $20000 $70000 Total stockholder's equity 2-Acquired for cash 70% of the 3000 shares of outstanding common stock of Skate Company at $40 a share. The stockholders equity of Skate on January 2, 2006. consisted of the following: Common stock, $20 par Additional paid in capital Retained earnings S 60000 S 20000 S 40000 S 120000 Total stockholder's equity Out-of-pocket costs of the two business combinations may be disregarded. An analysis of the retained earnings of eaclh company for year 2006 follows Pewter corporation Stewart company Skate company Balances beginning of year S240000 Net income (loss) Cash dividends declared and (40000) paid, Dec 3,2006 Balance end of year S 20000 36000 16000) S 40000 12000) 9000) 104600 304600 40000 19000 Instructions Prepare journal entries for Pewter Corporation to record the following for year 2006 1. investment in subsidiaries common stock 2. parent company's share of subsidiaries net income or net loss (disregarding income taxes) under the equity method of accounting 3. parent company's share of subsidiaries dividends declared under the equity method of accounting (do not prepare journal entries for receipt of cash)

Explanation / Answer

1. To record investment in subsidiaies' stock Date Account title Debit Credit Jan.2, 2006 Investment in Stewart Company 56000 Cash 56000 (To record acquisition of 80% stock of Stewart Company) Jan.2, 2006 Investment in Skate Company 84000 Cash 84000 (To record acquisition of 70% stock of Skate Company) 2. To record share of net income (net loss) in subsidiaies Date Account title Debit Credit Dec.31, 2006 Investment in Stewart Company 28800 Equity income from Stewart Company 28800 (To record 80% of net income of Stewart Company) Dec.31, 2006 Equity income from Skate Company 8400 Investment in Skate Company 8400 (To record 70% of net loss of Skate Company) 3. To record dividend income from subsidiaries Date Account title Debit Credit Dec.31, 2006 Cash 12800 Investment in Stewart Company 12800 (To record dividend received from Stewart Company) Dec.31, 2006 Cash 6300 Investment in Skate Company 6300 (To record acquisition of 70% stock of Skate Company)

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