Your company could have purchased 25% of the outstanding shares of SMALL Company for $180,000 in...

 

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Your company could have purchased 25% of the outstanding shares of SMALL Company for $180,000 in cash on April 1, 2021. You would have planned to hold the shares for more than one year and you would have taken significant interest in SMALL Company. On the acquisition date, SMALL Company had total stockholders' equity of $300,000 and all of their assets and liabilities were fairly valued except their equipment which was undervalued (needs to be increased) by $20,000 with a five year remaining life. Any remaining excess was considered goodwill. SMALL Company uses straight line depreciation. During the last nine months of the year, SMALL Company earned a total of $40,000 of net income and paid a total of 5,000 of cash dividends. On December 2021, your shares of SMALL Company had a total market value of $83,000. In another transaction, you would have sold 1,200 shares of your common stock on October 1, 2021, for $34.00 per share in cash. Your company declared and paid cash dividends of $2.00 per share to your common stockholders in December, 2021. In a third transaction, your company would have retired $100,000 of your bonds payable at 98 on November 1, 2021. The bonds had a carrying value of 95.5 on November 1, 2021. You would have saved the interest accrued on these bonds for the remaining 2 months of the year of $1,200 and you would have saved $800 of the discount amortization for the remaining 2 months of the year if you retired these bonds early. Prepare the entries which would have been made to record the events of Alternative A, including any adjusting entries on December 31, 2021. Your company could have purchased 25% of the outstanding shares of SMALL Company for $180,000 in cash on April 1, 2021. You would have planned to hold the shares for more than one year and you would have taken significant interest in SMALL Company. On the acquisition date, SMALL Company had total stockholders' equity of $300,000 and all of their assets and liabilities were fairly valued except their equipment which was undervalued (needs to be increased) by $20,000 with a five year remaining life. Any remaining excess was considered goodwill. SMALL Company uses straight line depreciation. During the last nine months of the year, SMALL Company earned a total of $40,000 of net income and paid a total of 5,000 of cash dividends. On December 2021, your shares of SMALL Company had a total market value of $83,000. In another transaction, you would have sold 1,200 shares of your common stock on October 1, 2021, for $34.00 per share in cash. Your company declared and paid cash dividends of $2.00 per share to your common stockholders in December, 2021. In a third transaction, your company would have retired $100,000 of your bonds payable at 98 on November 1, 2021. The bonds had a carrying value of 95.5 on November 1, 2021. You would have saved the interest accrued on these bonds for the remaining 2 months of the year of $1,200 and you would have saved $800 of the discount amortization for the remaining 2 months of the year if you retired these bonds early. Prepare the entries which would have been made to record the events of Alternative A, including any adjusting entries on December 31, 2021.

Answer rating: 100% (QA)

1 Investment in SMALL Company a Dr Cash 180000 b Cr Investment in SMALL Company 180000 2 Equipment u... View the full answer