On January 1, 2014, Klode Corporation Acquired an 80% Interest

question 6

Essay

On January 1, 2014, Klode Corporation acquired an 80% interest in Savy Company for $400,000 when Savy's stockholders' equity was $500,000; with Common stock $400,000 and Retained earnings $100,000.
On January 1, 2014, Savy purchased a 10% interest in Klode for $50,000 when Klode's total stockholders' equity was $500,000; with Common stock $400,000 and Retained earnings $100,000.
The following data was available for the year ending December 31, 2014:
Use the conventional approach to account for the mutually-held stock. Assume there were no book value/fair value differentials for each investment. The separate net incomes do not include investment income.
Required:
1. Prepare the journal entry for Klode on January 1, 2014.
2. Prepare the journal entry for Savy on January 1, 2014.
3. Prepare the journal entry to record the constructive retirement of 10% of Klode's outstanding stock due to Savy's purchase of Klode's stock.
4. Determine the incomes of Klode and Savy on a consolidated basis with mutual income for 2014 using simultaneous equations.
5. What is controlling interest share of consolidated net income and noncontrolling interest shares for 2014?

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Definitions:

Strike Price

The specified price at which the buyer of an option can buy (for a call option) or sell (for a put option) the underlying asset.

Net Profit

The amount of income that remains after all operating expenses, taxes, and costs have been subtracted from total revenue.

Call Contracts

Financial derivatives that give the holder the right, but not the obligation, to buy an asset at a set price within a specific time period.