Parmesan Company paid $3,600,000 for 90,000 of Stilton Company’s 100,000 outstanding common shares on January 1, 2015.On that date Stilton’s shareholders’ equity consisted of $2,000,000 of common shares and $1,000,000 of retained earnings. The excess of fair value over book value was considered to be goodwill. On January 1, 2017, Stilton sold an additional 20,000 shares to the public for$1,200,000.Immediately prior to the new issue, Stilton had retained earnings of $1,600,000.ParmesanCompany uses the equity method to account for its investment in Stilton and values the noncontrolling interest at its fair value on the acquisition date, proportionate to the price paid for its controlling interest. 

Required:

a)What journal entry will Parmesan make to account for its decreased ownership interest?

b)What will be the balance in Parmesan’s Investment in Stilton account immediately after the new issue?

Answer rating: 100% (QA)

a Parmesan Company will record the following journal entry to account for its decreased own... View the full answer