Question

      Pattern Company purchased 100% of Stock Company on January 2, 2013, for $450,000. At the time,...

      Pattern Company purchased 100% of Stock Company on January 2, 2013, for $450,000. At the time, Stock’s capital stock was $300,000, and its retained earnings were $150,000. At the time, Pattern and Stock had no intercompany transactions. Any excess of value implied by the purchase price over book value is attributable to land.

      A.  Prepare the journal entry to record Pattern’s investment in Stock.

      B.   Prepare the entry to eliminate Pattern’s investment in Stock.

      C.   Complete the workpaper.

Pattern Company and Stock Company

Workpaper

January 2, 2013

Pattern

Company

Stock

Company

Eliminations

Cons.

Bal. Sheet

Debit

Credit

Assets

Cash

$ 200,000

$  50,000

Accts Receivable

75,000

25,000

Inventory

80,000

50,000

Investment in S

450,000

Plant & Equip. (Net)

500,000

350,000

Land

   100,000

   50,000

     Total Assets

$1,405,000

$525,000

Liabilities & Equity

Accounts Payable

$  150,000

$  75,000

Capital Stock

1,000,000

300,000

Retained Earnings

   255,000

   150,000

     Total Lia. & Eq.

$1,405,000

$525,000

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Answer #1

Answer (a):

Stockholders'equity of Stock Company = $300000 + $150000 = $450,000

Consideration paid = $450,000

As such there is no excess value implied by the purchase price over book value which is attributable to land.

Credit Debit $450,000 General Journal Investment Subsidiary (Stock Company) Cash (to record Patterns investment in Stock) $4

Answer (b):

Credit General Journal Common Stock - Stock Company Retained Earnings - Stock Company Investment Subsidiary (Stock Company) (

Answer (c):

Pattern Company and Stock Company Workpaper 2-Jan-13 Pattern Stock Eliminations Company Company Debit Credit Cons. Bal. Sheet

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