Question - Pike Corporation paid $100,000 for a 10% interest in Salmon Corp. on January 1, 2010, when Salmon's stockholders' equity consisted of $800,000 of $10 par value common stock and $200,000 retained earnings. On December 31, 2011, after receipt of the year's dividends from Salmon, Pike paid $192,000 for an additional 20% interest in Salmon Corp. Both of Pike's investments were made when Salmon's book values equaled their fair values. Salmon's net income and dividends for 2010 and 2011 were as follows:
Net income in 31/12/2010 = $60,000 and in 31/12/2011 = $140,000
Dividends in 31/12/2010 = $20,000 and in 31/12/2011 = $40,000
Required:
1. Prepare journal entries for Pike Corporation to account for its investment in Salmon Corporation for 2010 and 2011.
2. Calculate the balance of Pike's investment in Salmon at December 31, 2011.