On January 2, 2023, the Smith Company purchased 30% (3,000 shares) of the outstanding stock of the Redder Company by paying $200,000 cash. On that date the net assets of the Redder Company on its balance sheet were $450,000. It was determined that Smith can exert significant influence over the Redder Company. When investigating the purchase price, it was determined that plant assets with a remaining life of 5 years were undervalued by $20,000; a patent with a remaining life of 12 years was undervalued by $50,000; and the remainder of value was assigned to goodwill. During 2023, the Redder Company earned $60,000 of income and paid a cash dividend of $30,000.
On January 1, 2024, the Smith Company sold 1,000 shares of the Redder Company stock for $80,000 cash. Redder earned income of $80,000 during 2024 and paid cash dividends of $30,000.

Required:
Prepare all the required journal entries for the Smith Company to account for its investment in the Redder Company stock for both 2023 and 2024.

Answer rating: 100% (QA)

20 23 Dr Investment Red der stock 200 000 Cr Cash 200 000 Dr Investment in Red der Co Pl ant assets ... View the full answer