Partner Company acquired 85% of the common stock of Simplex Company in two separate cash transactions. The first purchase of 108,000 shares (60%) on January 1, 2015, cost $735,000. The second purchase, one year later, of 45,000 shares (25%) cost $330,000. Simplex Company’s stockholders’ equity was as follows: December 31 December 31 2015 2016 Common Stock, $5 par $ 900,000 $ 900,000 Retained Earnings, 1/1 263,000 302,000 Net Income 69,000 90,000 Dividends Declared, 9/30 (30,000) (38,000) Retained Earnings, 12/31 302,000 354,000 Total Stockholders’ Equity, 12/31 $1,202,000 $1,254,000 On April 1, 2016, after a significant rise in the market price of Simplex Company’s stock, Partner Company sold 32,400 of its Simplex Company shares for $390,000. Simplex Company notified Partner Company that its net income for the first three months was $22,000. The shares sold were identified as those obtained in the first purchase. Any difference between cost and book value relates to goodwill. Partner uses the partial equity method to account for its investment in Simplex Company. Required: Prepare the journal entries Partner Company will make on its books during 2015 and 2016 to account for its investment in Simplex Company. 2. Prepare the workpaper eliminating entries needed for a consolidated statements workpaper on December 31, 2016.
- Partner Company acquired 85% of the common stock of Simplex Company in two separate cash transactions. The first purchase of 108,000 shares (60%) on January 1, 2015, cost $735,000. The second purchase, one year later, of 45,000 shares (25%) cost $330,000. Simplex Company’s
stockholders’ equity was as follows:
December 31 December 31
2015 2016
Common Stock, $5 par $ 900,000 $ 900,000
Net Income 69,000 90,000
Dividends Declared, 9/30 (30,000) (38,000)
Retained Earnings, 12/31 302,000 354,000
Total Stockholders’ Equity, 12/31 $1,202,000 $1,254,000
On April 1, 2016, after a significant rise in the market price of Simplex Company’s stock, Partner Company sold 32,400 of its Simplex Company shares for $390,000. Simplex Company notified Partner Company that its net income for the first three months was $22,000. The shares sold were identified as those obtained in the first purchase. Any difference between cost and book value relates to
Required:
- Prepare the
journal entries Partner Company will make on its books during 2015 and 2016 to account for its investment in Simplex Company.
2. Prepare the workpaper eliminating entries needed for a consolidated statements workpaper on December 31, 2016.
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