Question

On January 1, 2011, Plum Company made an open-market purchase of 30,000 shares of Spivey Company common stock for $122,000. At that time, Spivey Company had common stock ($2 par) of $600,000 and retained earnings of $240,000. On July 1, 2011, an additional 210,000 shares were purchased on the open market by Plum Company at a cost of $789,600 or $3,76 a share. On November 1, 2011, 3,000 of the shares purchased on January 1, 2011, were sold on the open market for $21,000. Assume that any excess of implied value over book value acquired relates to subsidiary goodwill.
During 2011, Plum Company earned $22,000 (excluding any gain or loss on the sale of the shares). Plum Company received income statements from Spivey Company reporting the following results.
Spivey Company Income
January 1, 2011 to June 30, 2011........ $ 60,000
January 1, 2011 to October 31, 2011..... 96,000
For the year ended December 31, 2011.... 130,000
Neither company declared dividends during the year. Plum Company’s retained earnings were $460,000 on January 1, 2011.

Required:
A. Prepare the book entries Plum Company would make during 2011 to account for its investment in Spivey Company, assuming
(1) The use of the cost method.
(2) The use of either the complete or the partial equity method.
B. Prepare in general journal form the eliminating entries for a consolidated statements workpaper on December 31, 2011, assuming
(1) The use of the cost method.
(2) The use of either the complete or the partial equity method.
C. Compute controlling interest in consolidated net income for2011.


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  • CreatedMarch 13, 2015
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