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.

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.

  • CreatedMarch 13, 2015
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