On October 1, 2010, Para Company purchased 90% of the outstanding common stock of Star Company for

Question:

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.

Required:

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.

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...