Problem

Pat Company paid $1,800,000 for 90,000 shares of Sir Company’s 100,000 outstanding shares...

Pat Company paid $1,800,000 for 90,000 shares of Sir Company’s 100,000 outstanding shares on January 1, 2011, when Sir’s equity consisted of $1,000,000 of $10 par common stock and $500,000 retained earnings. The excess fair value over book value was goodwill. On January 2, 2013, Sir sold an additional 20,000 shares to the public for $600,000, and its equity before and after issuance of the additional 20,000 shares was as follows (in thousands):

 

January 1, 2013 (Before Issuance)

January 2, 2013 (After Issuance)

$10 par common stock

$1,000

$1,200

Additional paid-in capital

400

Retained earnings

800

800

Total stockholders’ equity

$1,800

$2,400

REQUIRED

1. Determine Pat’s Investment in Sir account balance on January 1, 2013.


2. Prepare the entry on Pat’s books to account for its decreased ownership interest if gain or loss is not recognized.

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Solutions For Problems in Chapter 8