On January 1, 2015, Wells Corporation acquires 8,000 shares of Towne Company stock and 18,000 shares of Sara Company stock for $176,000 and $240,000, respectively. Each investment is acquired at a price equal to the subsidiary’s book value, resulting in no excesses. Towne Company and Sara Company have the following stockholders’ equities immediately prior toWells’s purchases: Towne Company Sara CompanyCommon stock ($5 par). . . . . . . . . . . . . . . . $ 50,000Common stock ($10 par). . . . . . . . . . . . . . $300,000Paid-in capital in excess of par . . . . . . . . . 100,000Retained earnings . . . . . . . . . . . . . . . . . . . . . 70,000 100,000Total stockholder’s equity. . . . . . . . . . . . . . $220,000 $400,000Additional information is as follows:a. Net income for Towne Company and Sara Company for 2015 and 2016 follows (income is assumed to be earned evenly throughout the year): 2015 2016Towne Company . . . . . . . . . . . . . . . . . . . . . . $50,000 $50,000Sara Company . . . . . . . . . . . . . . . . . . . . . . . . 40,000 40,000b. No cash dividends are paid or declared by Towne or Sara during 2015 and 2016.c. Towne Company distributes a 10% stock dividend on December 31, 2015. Towne stock is selling at $25 per share when the stock dividend is declared.d. On July 1, 2016, Towne Company sells 2,750 shares of stock at $35 per share. Wells Corporation purchases none of these shares.e. Sara Company sells 5,000 shares of stock on July 1, 2015, at $25 per share. Wells Corporation purchases 3,700 of these shares.f. On January 1, 2016, Sara Company purchases 5,000 shares of its common stock from noncontrolling interests at $20 per share.Assume Wells Corporation uses the simple equity method for its investments in subsidiaries. For 2015 and 2016, record each of the adjustments to the investment accounts. Provide all supporting calculations in good form.
On January 1, 2015, Wells Corporation acquires 8,000 shares of Towne Company stock and 18,000 shares of Sara Company stock for $176,000 and $240,000, respectively. Each investment is acquired at a price equal to the
Towne Company Sara Company
Common stock ($5 par). . . . . . . . . . . . . . . . $ 50,000
Common stock ($10 par). . . . . . . . . . . . . . $300,000
Paid-in capital in excess of par . . . . . . . . . 100,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . 70,000 100,000
Total stockholder’s equity. . . . . . . . . . . . . . $220,000 $400,000
Additional information is as follows:
a. Net income for Towne Company and Sara Company for 2015 and 2016 follows (income is assumed to be earned evenly throughout the year):
2015 2016
Towne Company . . . . . . . . . . . . . . . . . . . . . . $50,000 $50,000
Sara Company . . . . . . . . . . . . . . . . . . . . . . . . 40,000 40,000
b. No cash dividends are paid or declared by Towne or Sara during 2015 and 2016.
c. Towne Company distributes a 10% stock dividend on December 31, 2015. Towne stock is selling at $25 per share when the stock dividend is declared.
d. On July 1, 2016, Towne Company sells 2,750 shares of stock at $35 per share. Wells Corporation purchases none of these shares.
e. Sara Company sells 5,000 shares of stock on July 1, 2015, at $25 per share. Wells Corporation purchases 3,700 of these shares.
f. On January 1, 2016, Sara Company purchases 5,000 shares of its common stock from noncontrolling interests at $20 per share.
Assume Wells Corporation uses the simple equity method for its investments in subsidiaries. For 2015 and 2016, record each of the adjustments to the investment accounts. Provide all supporting calculations in good form.
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