On 1/1/X1 Poncho Acquired an 80% Interest in Stroller for $560,000

question 7

Essay

On 1/1/X1 Poncho acquired an 80% interest in Stroller for $560,000 when Stroller's equity consisted of $530,000 paid-in capital and $100,000 Retained Earnings. Any excess of purchase price over was attributed to goodwill.
On January 1, 20X6, Stroller had the following stockholders' equity:
$\begin{array}{lr}\text { Common stock }(\$ 20 \text { par) } & \$ 180,000 \\\text { Paid-in capital in excess of par } & 350,000 \\\text { Retained earnings } & 220,000\\\text { Total stockholders' equity }&\$750,000\end{array}$ On January 2, 20X6, Company S sold 1,000 additional shares to noncontrolling shareholders in a public offering for $50 per share. Stroller's net income for 20X6 was 80,000. Poncho uses the simple equity method to record its investment in Stroller.
Required:
a.
Prepare Poncho's journal entry to adjust its Investment in Stroller account on January 2, 20X6. Assume that Poncho has $500,000 additional paid-in capital.
b.
Determine the carrying value of Poncho's Investment in Stroller account on December 31, 20X6.

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Definitions:

Success Probability

The likelihood or chance of a desired outcome or event occurring, often used in the context of experiments, trials, or processes.

Random Variable

A numerical variable whose values are determined by the outcomes of random situations.

Poisson Distribution

A statistical distribution showing the probability of a given number of events happening in a fixed interval of time or space if these events occur with a constant mean rate and independently of the time since the last event.

Poisson Distribution

A distribution for predicting the probability of a given number of events occurring over a fixed interval of time or space.