On January 1, 20X1, Parent Company Purchased 9,000 Shares of the Common

Essay

On January 1, 20X1, Parent Company purchased 9,000 shares of the common stock of Subsidiary Company for $405,000. On this date, Subsidiary had 20,000 shares of $5 par common stock authorized, 10,000 shares issued and outstanding. Other paid-in capital and retained earnings were $150,000 and $200,000 respectively. On January 1, 20X1, any excess of cost over book value is due to a patent, to be amortized over 10 years.
Subsidiary's net income and dividends for two years were:
On January 1, 20X2, Subsidiary Company sold an additional 2,000 shares of common stock for $50 per share. Parent purchased 1,200 shares of the new issue, and noncontrolling shareholders purchased the other 800.
For both 20X1 and 20X2, Parent Company has applied the simple equity method.
Required:
a.Prepare a schedule that measures Parent's change in interest ownership effective with Sub's issuance of the 2,000 shares and Parent's acquisition of 1,200 of those shares.
b.Prepare Parent's journal entry to record its purchase of the 1,200 shares on 1/1/X2
c.Prepare a schedule showing the 12/31/X2 balance of Parent's Investment in Sub account