Advanced Accounting 11th Edition by Paul Fischer,William Tayler, Rita Cheng

Exercise 19

Equity adjustments with preferred stock. Brian Construction Company has the following stockholders' equity on January 1, 2011, the date on which Roller Company purchases an 80% interest in the common stock for $720,000:
8% cumulative preferred stock (5,000 shares, $100 par).......................... $ 500,000
Common stock (40,000 shares, $20 par)....................................... 800,000
Retained earnings......................................................... 200,000
Total stockholders' equity.................................................. $1,500,000
Brian Construction Company did not pay preferred dividends in 2010.
1. Prepare a determination and distribution of excess schedule. Assume that the preferred stock's liquidation value is equal to par and that any excess of cost is attributable to goodwill.
2. Assume Ace Construction has the following net income (loss) for 2011 and 2012 and does not pay any dividends:
2011 income............................... $70,000
2012 income............................... 40,000
Roller maintains its investment account under the cost method. Prepare the cost-to-equity conversion entries necessary on Roller Company's books to adjust its investment account to the simple equity balance as of January 1, 2013.