Pamela Company Acquired 80% of the Outstanding Common Stock of Silt

question 19

Essay

Pamela Company acquired 80% of the outstanding common stock of Silt Company on January 1, 2011, for $396,000.At the date of purchase, Silt Company had a balance in its $2 par value common stock account of $360,000 and retained earnings of $90,000.On January 1, 2013, Silt Company issued 45,000 shares of its previously unissued stock to noncontrolling stockholders for $3 per share.On this date, Silt Company had a retained earnings balance of $152,000.The difference between cost and book value relates to subsidiary land.No dividends were paid in 2013.Silt Company reported income of $30,000 in 2013.
Required:
A.Prepare the journal entry on Pamela's books to record the effect of the issuance assuming the equity method.
B.Prepare the eliminating entries needed for the preparation of a consolidated statements workpaper on December 31, 2013, assuming the equity method.

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Definitions:

Deposits

Funds placed into an account at a financial institution for safekeeping, which can include savings accounts, checking accounts, and certificates of deposit.

Excess Reserves

Banking reserves that are held by a bank in excess of what is required by regulations or central bank requirements.

Required Reserves

The minimum amount of reserves a bank is mandated to hold by central banking authorities, often a percentage of the bank's deposit liabilities.

Treasury Bill

A short-term government security issued at a discount from the face value and returning the face amount upon maturity, commonly used as a safe and liquid investment.