On January 1, 2013, Carlos Corporation purchases 90% (18,000 shares) of the outstanding common stock of Dower Company for $504,000. Just prior to Carlos Corporation’s purchase, Dower Company has the following stockholders’ equity:Common stock ($5 par). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000Total stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $500,000 At this time, Dower Company’s book values approximate fair values except for buildings with a 20-year life.On January 1, 2017, Dower Company’s retained earnings balance amounts to $200,000. No changes have taken place in the paid-in capital in excess of par accounts since the original sale of common stock on July 10, 2010. On July 1, 2017, Carlos Corporation sells 2,000 of its Dower Company shares to Tanner Corporation for $100,000. At the time of this sale, Carlos has no intention of selling the balance of its holding in Dower Company.In an unexpected move on December 31, 2017, Carlos Corporation sells its remaining 80% interest in Dower Company to Tanner Corporation for $540,000.Dower Company’s reported income and dividends for 2017 are as follows: Income DividendsJanuary 1, 2017–July 1, 2017 . . . . . . . $30,000 $0.50/shareJuly 1, 2017–December 31, 2017 . . . 40,000 0.50/sharePrepare the determination and distribution of excess schedule for Carlos Corporation’s purchase of Dower Company common stock on January 1, 2013. Then, prepare all the entries on Carlos’s books needed to reflect the changes in its investment account from January 1, 2017, to December 31, 2017. (Assume Carlos uses the cost method to report its investment in Dower Company.)
On January 1, 2013, Carlos Corporation purchases 90% (18,000 shares) of the outstanding common stock of Dower Company for $504,000. Just prior to Carlos Corporation’s purchase, Dower Company has the following
Common stock ($5 par). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000
Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000
Total stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $500,000
At this time, Dower Company’s book values approximate fair values except for buildings with a 20-year life.
On January 1, 2017, Dower Company’s retained earnings balance amounts to $200,000. No changes have taken place in the paid-in capital in excess of par accounts since the original sale of common stock on July 10, 2010. On July 1, 2017, Carlos Corporation sells 2,000 of its Dower Company shares to Tanner Corporation for $100,000. At the time of this sale, Carlos has no intention of selling the balance of its holding in Dower Company.
In an unexpected move on December 31, 2017, Carlos Corporation sells its remaining 80% interest in Dower Company to Tanner Corporation for $540,000.
Dower Company’s reported income and dividends for 2017 are as follows:
Income Dividends
January 1, 2017–July 1, 2017 . . . . . . . $30,000 $0.50/share
July 1, 2017–December 31, 2017 . . . 40,000 0.50/share
Prepare the determination and distribution of excess schedule for Carlos Corporation’s purchase of Dower Company common stock on January 1, 2013. Then, prepare all the entries on Carlos’s books needed to reflect the changes in its investment account from January 1, 2017, to December 31, 2017. (Assume Carlos uses the cost method to report its investment in Dower Company.)
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