Investee with Preferred Stock Outstanding
Reden Corporation purchased 45 percent of Montgomery Company’s common stock on January 1, 20X9, at underlying book value of $288,000. Montgomery’s balance sheet contained the following stockholders’ equity balances:
Preferred Stock ($5 par value, 50,000 shares issued and outstanding) | $250,000 |
Common Stock ($1 par value, 150,000 shares issued and outstanding) | 150,000 |
Additional Paid-In Capital | 180,000 |
Retained Earnings | 310,000 |
Total Stockholders’ Equity | $890,000 |
Montgomery’s preferred stock is cumulative and pays a 10 percent annual dividend. Montgomery reported net income of $95,000 for 20X9 and paid total dividends of $40,000.
Required
Give the journal entries recorded by Reden Corporation for 20X9 related to its investment in Montgomery Company common stock.
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