Question - On January 2, 2010, ABC Corp. acquired 40% of the 2,000,000 outstanding shares of common stock of XYZ Corp.
On January 2, 2010, XYZ common stock was selling for $15/share; it had a par value of $1.
On January 2, 2010, ABC common stock was selling for $24/share; it had a par value of $1.
XYZ closing journal entries (ending 2010):
Total Assets: $500,000,000
Liabilities: $22,500,000
Stockholders Equity: $27,500,000.
Net income for the year was $7,500,000.
Dividends declared and paid on December 31, 2016 amounted to $1,000,000.
The fair value of XYZ stock on December 31, 2010 was $17.5 per share.
ABC uses the equity method to account for this investment (not use fair value method)
Prepare journal entries (omit journal entry explanations) for ABC on the following dates/activities. If no entry is required, give an explanation why there is no entry.
A. January 2, 2010 - Purchased the XYZ Common Stock
B. December 31, 2010 - Fair Value of XYZ Common Stock is $17.5
C. December 31, 2010 - Outer Circle Net Income is $7,500,000