Question

On January 1, 2010, Purdy Company acquired 84% of the capital stock of Sally Company for $840,000. On that date, Sally Company’s stockholders’ equity was:
Capital Stock, $20 par......... $600,000
Other Contributed Capital..... 200,000
Retained Earnings......... 160,000
Total.................. $960,000
The difference between implied and book values relates to land owned by Sally Company.
On January 2, 2012, Sally Company issued 6,000 shares of its authorized capital stock, with a market value of $55 per share, to Marcy Smith in exchange for a patent. Sally Com pany's retained earnings balance on this date was $400,000, capital stock and other con tributed capital balances had not changed during 2010 and 2011.

Required:
A. Prepare
(1) The entry on Purdy's books to record the effect of the issuance, and
(2) The elimination entries for the preparation of a consolidated balance sheet workpaper immediately after the new issue of shares assuming use of the cost method.
B. Assuming that the market value of the new shares issued was $34 per share, repeat requirement A above.



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  • CreatedMarch 13, 2015
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