Sarko Company had 300,000 shares of $10 par value common stock outstanding from 2023 through 2026 and
Question:
Sarko Company had 300,000 shares of $10 par value common stock outstanding from 2023 through 2026 and retained earnings balances as indicated below:
Sarko Company declared no dividends during this period. The fair values of Sarko Company’s assets and liabilities were approximately equal to their book values throughout this period (2023 through 2025). Initially, in 2023, a 10% interest in Sarko is acquired. The investment is classified as available for sale. In 2024, another 25% of Sarko is acquired and the investment qualifies for the equity method. In 2025, the year of acquisition, another 45% is acquired and Pelzer has control over Sarko and chooses to account for its controlling interest using the cost method.
Required:
A. Compute the balance in the investment account as of the date of the acquisition (1/1/2025).
B. Prepare elimination entries for the preparation of a consolidated statements workpaper on December 31, 2025.
Step by Step Answer: