Question

Albuquerque, Inc., acquired 18,000 shares of Marmon Company several years ago for $800,000. At the acquisition date, Marmon reported a book value of $840,000, and Albuquerque assessed the fair value of the noncontrolling interest at $70,000. Any excess of acquisition-date fair value over book value was assigned to broadcast licenses with indefinite lives. Since the acquisition date and until this point, Marmon has issued no additional shares. No impairment has been recognized for the broadcast licenses. At the present time, Marmon reports $990,000 as total stockholders’ equity, which is broken down as follows: Common stock ($13 par value) $ 260,000 Additional paid-in capital 400,000 Retained earnings 330,000 Total $ 990,000 View the following as independent situations: a. & b. Marmon sells 5,000 and 4,000 shares of previously unissued common stock to the public for $58 and $29 per share. Albuquerque purchased none of this stock. What journal entry should Albuquerque make to recognize the impact of this stock transaction? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round your intermediate calculations.)

Answer 1

Hi

Let me know in case you face any issue:

Solution: Working: Acquisition interrest at beginning (18000)/ (260000/13) = Adjusted till date fair value (800000+70000) +(990000-840000) = 90.0% 1) 1020000 After the stock issue adjusted till date fair value (1020000)+(5000*58) 1310000 Current Interest after share issuance (18000)/ (20000+5000) = Investment equity balance before share issuance (800000)+(150000 *90%) Implied book value of investment after share issuance Increase in Additional paid in capital 72.0% 935000 (1375000*72%) 943200 8200 Naming convention is not available, can be slightly different: Journal Entires Account title and explaination Investment in Marmon Additional paid in capital (To record the adjustment of sale of additional shares by Subsidiary) Additional paid in capital Investment in Marmon Debit Trans. Credit |1) $8,200 $ 8,200 |2) $ 83,000 $ 83,000 (To record the adjustment of sale of additional shares by Subsidiary) Working: Acquisition interest at beginning (18000)/ (260000/13) 90.0% Adjusted till date fair value (800000+70000) +(990000-840000) 2) 1020000 After the stock issue adjusted till date fair value (1020000)+(4000*29) Current Interest after share issuance (18000) (20000+4000) 1136000 75.0% Investment equity balance before share issuance (800000)+(150000*90%) 935000 (1136000 75%) Implied book value of investment after share issuance Decrease in Additional paid in capital 852000 -83000