On January 1 2012 Pruitt Company issued 25 500 shares of
On January 1, 2012, Pruitt Company issued 25,500 shares of its common stock ($2 par) in exchange for 85% of the outstanding common stock of Shah Company. Pruitt’s common stock had a fair value of $28 per share at that time. Pruitt Company uses the cost method to account for its investment in Shah Company and files a consolidated income tax return. A schedule of the Shah Company assets acquired and liabilities assumed at book values (which are equal to their tax bases) and fair values follows.


Additional Information:
1. Pruitt’s income tax rate is 35%.
2. Shah’s beginning inventory was all sold during 2012.
3. Useful lives for depreciation and amortization purposes are:
Plant assets.... 10 years
Patents.... 8 years
Bond premium. 10 years
4. Pruitt uses the straight-line method for all depreciation and amortization purposes.

Required:
A. Prepare the stock acquisition entry on Pruitt Company’s books.
B. Assuming Shah Company earned $216,000 and declared a $90,000 dividend during 2012; prepare the eliminating entries for a consolidated statements workpaper on December 31, 2012.
C. Assuming Shah Company earned $240,000 and declared a $100,000 dividend during
2013, prepare the eliminating entries for a consolidated statements workpaper on December 31,2013.
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