On January 1, 2014, Plum Company made an open-market purchase of 30,000 shares of Spivey Company common

Question:

On January 1, 2014, 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, 2014, 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, 2014, 3,000 of the shares purchased on January 1, 2014, 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 2014, 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, 2014 to June 30, 2014 .......................$ 60,000

January 1, 2014 to October 31, 2014 .....................96,000

For the year ended December 31, 2014 ................130,000

Neither company declared dividends during the year. Plum Company's retained earnings were $460,000 on January 1, 2014.

Required:

A. Prepare the book entries Plum Company would make during 2014 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 work paper on December 31, 2014, 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 for 2014.

Common Stock
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...
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Related Book For  book-img-for-question

Advanced Accounting

ISBN: 978-1119119364

6th edition

Authors: Debra Jeter, Paul Chaney

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