On 1/1/16 Poncho Acquired an 80% Interest in Stroller for $560,000

question 1

Essay

On 1/1/16 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.
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On January 1, 2021, Stroller had the following stockholders' equity:
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$$\begin{array} { l r } \text { Common stock } ( \$ 20 \text { par) } & \$ 180,000 \\\text { Paid-in capital in excess of par } & 350,000 \\\text { Retained earnings } & 220,000 \\\quad \text { Total stockholders' equity } & \$ 750,000 \\\end{array}$$ On January 2, 2021, Company S sold 1,000 additional shares to non-controlling shareholders in a public offering for $50 per share.Stroller's net income for 2021 was 80,000.Poncho uses the simple equity method to record its investment in Stroller.
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Required:
a.Prepare Poncho's journal entry to adjust its Investment in Stroller account on January 2, 2021.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, 2021.

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Definitions:

Margin of Safety

The difference between actual sales and the break-even point, used to evaluate the level of risk in a business operation.

Break-even Sales

The amount of revenue required to cover total fixed and variable costs, at which point a business neither makes a profit nor incurs a loss.

Sales Units

The quantity of product sold, often used as a measure in assessing sales performance and operational efficiency.

Fixed Expenses

Costs that do not change with the level of production or sales over the short term, such as rent, salaries, and insurance.