Question

Server Corporation is a majority-owned subsidiary of Proxy Corporation. Proxy acquired 75 percent ownership on January 1, 20X3, for $133,500. At that date, Server reported common stock outstanding of $60,000 and retained earnings of $90,000, and the fair value of the noncontrolling interest was $44,500. The differential is assigned to equipment, which had a fair value $28,000 more than book value and a remaining economic life of seven years at the date of the business combination. Server reported net income of $30,000 and paid dividends of $12,000 in 20X3.a. Prepare the journal entries recorded by West during 20X3 on its books if it accounts for its investment in Canton using the equity method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

Event Proxy Corporation                              Debit Credit

          Journal Entry  

1         Investment in Server Corporation $133,500  

         Cash                                                         $133,500  

2         Investment in Server Corporation $22,500  

        Income from Server Corporation                 $22,500  

3         Cash                                                  $9,000  

         Investment in Server corporation           $9,000  

4          Income from Server corporation           $3,000  

         Investment in Server corporation         $3,000  

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