Poomjai Company acquired 85% of the common stock of Saijai Company in two separate cash transactions. The first purchase of 72,000 shares on 1 January 2020, cost $490,000. The second purchase on 1 January 2021 of 30,000 shares cost $220,000. Saijai Company’s stockholders’ equity was as follows:
                                                    2020                        2021
Common stock, $5 par        $600,000              $600,000
Retained earnings, 1 Jan       175,000                 201,000
Net income                                46,000                   60,000
Dividends declared                 (20,000)                (25,000)
Retained earnings, 31 Dec    201,000                236,000

On 1 April 2021, after a significant rise in the market price of Saijai Company’s stock, Poomjai Company sold 21,600 of its Saijai Company shares for $260,000. Saijai Company notified Poomjai Company that its net income for the first three months was $15,000. The shares sold were identified as those obtained in the first purchase. The difference between purchase cost and book value on the first purchase relates to goodwill. Poomjai Company uses the cost method to account for its investment in Saijai Company.

Required:

1. Prepare the journal entries Poomjai Company would record on its books during 2020 and 2021 to account for its investment in Saijai Company.

2. Prepare the workpaper eliminating entries needed for a consolidated statements workpaper on 31 December 2021.

Answer rating: 100% (QA)

The organization records its activity in its journal book The acquisition also recorded in the journ... View the full answer