Azure Enterprises acquired 90 percent of Brown Corporation’s voting common stock on January 1, 20X3, for $315,000. At that date, the fair value of the noncontrolling interest of Brown Corporation was $35,000. Immediately after Azure acquired its ownership, Brown purchased 60 percent of Coral Company’s stock for $120,000. The fair value of the noncontrolling interest of Coral Company was $80,000 at that date. During 20X3, Azure reported operating income of $200,000 and paid dividends of $80,000. Brown reported operating income of $120,000 and paid dividends of $50,000. Coral reported net income of $40,000 and paid dividends of $15,000. At January 1, 20X3, the stockholders’ equity sections of the balance sheets of the companies were as follows:

Required

a. Prepare the journal entries recorded by Brown for its investment in Coral during 20X3.

b. Prepare the journal entries recorded by Azure for its investment in Brown during 20X3.

c. Prepare the consolidation entries related to Brown’s investment in Coral and Azure’s investment in Brown that are needed in preparing consolidated financial statements for Azure and its subsidiaries at December 31, 20X3.

Transcribed Image Text:

Common Stock Additional Paid-In Capital Retained Eamings Total Stockholders' Equity Azure Enterprises $200,000 160,000 360,000 $720,000 Brown Corporation $150,000 60,000 140,000 $350,000 Coral Company $100,000 60,000 40,000 $200,000