Question

On January 1, 2020, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,789,900 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger had a total book value of $2,250,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger’s accounting records by $297,000. On January 1, 2021, Palka acquired an additional 25 percent common stock equity interest in Sellinger Company for $665,625 in cash. On its internal records, Palka uses the equity method to account for its shares of Sellinger.

During the two years following the acquisition, Sellinger reported the following net income and dividends:

	2020			2021
Net income	$	465,000		$	577,000
Dividends declared		150,000			190,000

1. Show Palka’s journal entry to record its January 1, 2021, acquisition of an additional 25 percent ownership of Sellinger Company shares.

2. Prepare a schedule showing Palka’s December 31, 2021, equity method balance for its Investment in Sellinger account.

PLEASE HELP WITH REQUIREMENT B WRONG QUESTION

Complete this question by entering your answers in the tabs below. Required A Required B Show Palka's journal entry to record its January 1, 2021, acquisition of an additional 25 percent ownership of Sellinger Company shares. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) No Credit Debit 705,625 1 Date General Journal January 01, 2021 Investment in Sellinger Cash Additional paid-in capital 665,625 40,000 < Required A Required B >

Answer 1

Solution

Initial value for acquisition	$17,89,900
Adjusted subsidiary net income 2020 ($465,000-$49,500)*70%	$290,850
70% of subsidiary dividends 2020 ($150,000*70%)	-$105,000
Adjusted fair value of newly acquired shares[(28,22,500 *25%) FROM NOTE]	$705,625
95% of adjusted subsidiary 2021 net income ($577,000- $49,500)*95% (70%+25%)	$501,125
95% of subsidiary dividends 2021(190,000*95%)	-$180,500
Investment in Sellinger 12/31/21	$30,02,000

Please show $ 105,000 & $ 180,000 with minus figure in your answer

NOTE:

Acquisition-date fair value ($17,89,900 /70%)	$25,57,000
Sellinger net income 2020	$465,000
Excess fair value amortization 2020 ($297,000/6)	($49,500)
Selling per dividends 2020	($150,000)
Acquisition-date adjusted subsidiary value	$28,22,500

Please give thumbs up if you like my answer :-)