On October 1, 2010, Para Company purchased 90% of the outstanding common stock of Star Company for $210,000. Additional data concerning Star Company for 2010 follows:
Common stock......... $70,000
Other contributed capital...... 30,000
Retained earnings, 1/1......... 70,000
Net income........... 60,000
Dividends declared and paid (12/15).. 10,000
Any difference between book value and the value implied by the purchase price relates to goodwill. Para Company uses the partial equity method to record its investment in Star Company.
A. Prepare on Para Company’s books journal entries to record the investment-related activities for 2010.
B. Prepare workpaper eliminating entries for a workpaper on December 31, 2010. Star Company’s net income is earned evenly throughout the year. (Use alternative two—the partialyear reporting alternative.)
C. Repeat part B, but use the full-year reporting alternative.