Paula Inc Purchased an 80% Interest in the Sharon Co

Essay

Paula Inc. purchased an 80% interest in the Sharon Co. for $480,000 on January 1, 20X1, when Sharon Co. had the following stockholders' equity:
$\begin{array}{lr}\text { Common stock } \$ 10 \text { par } & \$ 200,000 \\\text { Retained earnings } & \$ 300,000 \\\text { Total equity } & \$ 500,000\end{array}$ Any excess is attributable to goodwill.
On January 1, 20X3, Sharon Co. purchased a 10% interest in the Paula Inc. at a price equal to book value. Both firms maintain investments under the cost method.
Required:
a.
Complete the Figure 8-2 partial worksheet for December 31, 20X3, assuming the use of the treasury stock method.
b.
Calculate the distribution of income for 20X3, assuming that internally generated net income is $50,000 for Paula and $20,000 for Sharon.