Question

On October 1, 2015, Para Company purchased 90% of the outstanding common stock of Star Company...

On October 1, 2015, Para Company purchased 90% of the outstanding common stock of Star Company for $202,700. Additional data concerning Star Company for 2015 follows:
Common stock $65,500
Other contributed capital 28,700
Retained earnings, 1/1 76,100
Net income 57,000
Dividends declared and paid (12/15) 10,300

Any difference between book value and the value implied by the purchase price relates to goodwill. Para Company uses the partial equity method to record its investment in Star Company.

(a)

Prepare on Para Company’s books journal entries to record the investment-related activities for 2015. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation

Debit

Credit

(To record investment in
subsidiary)

(To account for prorated
stake in equity)

(To account for reduction in
equity due to dividends)
Business   Accounting   
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Homework Answers

Answer #1

Under Partial equity Method the Investor records investment value at cost and no adjustments are made.

Share of dividend received is adjusted with Investment.Prorate share in Income of investee is also account and recognized in Income Statement.

Dividends reduce and Share of net Incime increase the value of Investments in books of Investor

Accordingly the entries for 2015 by Para Comapny in its boom for investment in Star Company will be as hereunder :

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