Pegory Inc. acquired 20% of the outstanding common shares of Sunderson Inc. on 1/1/18. The purchase price
Question:
Pegory Inc. acquired 20% of the outstanding common shares of Sunderson Inc. on 1/1/18. The purchase price paid was $1,250,000 in cash for 50,000 shares. Sunderson declared and paid a cash dividend of $0.80 per share on June 30, 2018. Sunderson reported net income of $730,000 for 2018.
Instructions:
A) Prepare the journal entries for Pegory in 2018, assuming that Pegory cannot exert significant influence over Sunderson and Sunderson is not an actively traded stock. (cost method)
B) Prepare the journal entries for Pegory in 2018, assuming that Pegory cannot exert significant influence over Sunderson and that the fair value of Sunderson's shares in the active market is $27 per share on 12/31/18. Securities must be classified as available for sale. (cost method)
C) Prepare the journal entries for Pegory in 2018, assuming that Pegory can exert significant influence over Sunderson. (Equity method)
Advanced Financial Accounting
ISBN: 978-0132928939
7th edition
Authors: Thomas H. Beechy, V. Umashanker Trivedi, Kenneth E. MacAulay