Midyear Purchase of Controlling Interest
Blase Company operates on a calendar-year basis, reporting its results of operations quarterly. For the first quarter of 20X1, Blase reported sales of $240,000 and operating expenses of $180,000, and paid dividends of $10,000. On April 1, 20X1, Mega Theaters Inc. acquired 85 percent of Blase’s common stock for $765,000. At that date, the fair value of the noncontrolling interest was $135,000, and Blase had 100,000 shares of $1 par common stock outstanding, originally issued at $6 per share. The differential is related to goodwill. On December 31, 20X1, the management of Mega Theaters reviewed the amount attributed to goodwill as a result of its purchase of Blase common stock and concluded that goodwill was not impaired.
Blase’s retained earnings statement for the full year 20X1 appears as follows:
Retained Earnings, January 1, 20X1 | $150,000 |
Net Income | 175,000 |
Dividends | (40,000) |
Retained Earnings, December 31, 20X1 | $285,000 |
Mega Theaters accounts for its investment in Blase using the equity method.
Required
a.Present all entries that Mega Theaters would have recorded in accounting for its investment in Blase during 20X1.
b.Present all eliminating entries needed in a worksheet to prepare a complete set of consolidated financial statements for the year 20X1.
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