Question

Albuquerque, Inc., acquired 24,000 shares of Marmon Company several years ago for $700,000. At the acquisition date, Marmon reported a book value of $810,000, and Albuquerque assessed the fair value of the noncontrolling interest at $175,000. Any excess of acquisition-date fair value over book value was assigned to broadcast licenses with indefinite lives. Since the acquisition date and until this point, Marmon has issued no additional shares. No impairment has been recognized for the broadcast licenses. At the present time, Marmon reports $950,000 as total stockholders' equity, which is broken down as follows: $ Common stock ($12 par value) Additional paid-in capital Retained earnings Total 360,000 330, 000 260,000 950,000 $ View the following as independent situations: a. & b. Marmon sells 10,000 and 2,000 shares of previously unissued common stock to the public for $36 and $22 per share. Albuquerque purchased none of this stock. What journal entry should Albuquerque make to recognize the impact of this stock transaction? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round your intermediate calculations.)

Answer 1

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|Solution: Working: Acquisition interest at beginning (24000)/ (360000/12) Adjusted till date fair value (700000+175000) +(950000-810000) 80.0% 1) 1015000 After the stock issue adjusted till date fair value (1015000)+(10000* 36) Current Interest after share issuance (24000)/ (30000+10000) 1375000 60.0% (700000)+(140000*80%) (1375000 60%) Investment equity balance before share issuance 812000 Implied book value of investment after share issuance 825000 Increase in Additional paid in capital 13000 Naming convention is not available, can be slightly different: Journal Entires Account title and explaination Investment in Marmon Additional paid in capital (To record the adjustment of sale of additional shares by Subsidiary) Additional paid in capital Investment in Marmon Debit Trans. Credit 1) 13,000 13,000 |2) $17,750 $17,750 (To record the adjustment of sale of additional shares by Subsidiary) Working: Acquisition interest at beginning (24000)/ (360000/12) Adjusted till date fair value (700000+175000) +(950000-810000) After the stock issue adjusted till date fair value (1015000) +(2000* 22) Current Interest after share issuance (24000) (30000+2000) 80.0% 2) 1015000 1059000 75.0% Investment equity balance before share issuance (700000)+(140000*80%) 812000 (1059000 75%) Implied book value of investment after share issuance 794250 Decrease in Additional paid in capital -17750