Clayton Corporation purchased 75 percent of Topple Company common stock and 40 percent of its preferred stock

Question:

Clayton Corporation purchased 75 percent of Topple Company common stock and 40 percent of its preferred stock on January 1, 20X6, for $270,000 and $80,000, respectively. At the time of purchase, the fair value of Topple's common shares held by the noncontrolling interest was $90,000.

Topple's balance sheet contained the following balances:

Preferred Stock ($10 par value) .... $200,000

Common Stock ($5 par value)..... 150,000

Retained Earnings........... 210,000

Total Stockholders’ Equity...... $560,000

For the year ended December 31, 20X6, Topple reported net income of $70,000 and paid dividends of $50,000 (which includes the preferred dividend). The preferred stock is cumulative and pays an annual dividend of 8 percent.

Required

a. Prepare the journal entries recorded by Clayton for its investments in Topple during 20X6.

b. Present the elimination entries needed to prepare the consolidated financial statements for Clayton Corporation as of December 31, 20X6.

Financial Statements
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Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...