Eliminating Entries for Multilevel Ownership
Promise Enterprises acquired 90 percent of Brown Corporation’s voting common stock on January 1, 20X3, for $315,000. At that date, the fair value of the noncontrolling interest of Brown Corporation was $35,000. Immediately after Promise acquired its ownership, Brown purchased 60 percent of Tann Company’s stock for $120,000. The fair value of the noncontrolling interest of Tann Company was $80,000 at that date. During 20X3, Promise reported operating income of $200,000 and paid dividends of $80,000. Brown reported operating income of $120,000 and paid dividends of $50,000. Tann reported net income of $40,000 and paid dividends of $15,000. At January 1, 20X3, the stockholders’ equity sections of the balance sheets of the companies were as follows:
| Promise Enterprises | Brown Corporation | Tann Company |
| |||
Common Stock | $200,000 | $150,000 | $100,000 |
Additional Paid-In Capital | 160,000 | 60,000 | 60,000 |
Retained Earnings | 360,000 | 140,000 | 40,000 |
Total Stockholders’ Equity | $720,000 | $350,000 | $200,000 |
Required
a. Prepare the journal entries recorded by Brown for its investment in Tann during 20X3.
b. Prepare the journal entries recorded by Promise for its investment in Brown during 20X3.
c. Prepare the eliminating entries related to Brown’s investment in Tann and Promise’s investment in Brown that are needed in preparing consolidated financial statements for Promise and its subsidiaries at December 31, 20X3.
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