Cinema Company acquired 70 percent of Movie Corporation's shares on December 31, 20X5, at underlying book value of $98,000. At that date, the fair value of the noncontrolling interest was equal to 30 percent of the book value of Movie Corporation. Movie's balance sheet on January 1, 20X8, contained the following balances:
On January 1, 20X8, Movie acquired 5,000 of its own $2 par value common shares from Nonaffiliated Corporation for $6 per share.

-Based on the preceding information,what will be the journal entry to be recorded on Cinema Company's books to recognize the change in the book value of the shares it holds?

Question

Cinema Company acquired 70 percent of Movie Corporation's shares on December 31, 20X5, at underlying book value of $98,000. At that date, the fair value of the noncontrolling interest was equal to 30 percent of the book value of Movie Corporation. Movie's balance sheet on January 1, 20X8, contained the following balances:
On January 1, 20X8, Movie acquired 5,000 of its own $2 par value common shares from Nonaffiliated Corporation for $6 per share.
 
-Based on the preceding information,what will be the journal entry to be recorded on Cinema Company's books to recognize the change in the book value of the shares it holds?

Quizplus · Accepted Answer

The journal entry to record the change in book value of Cinema Company's shares after Movie Corporation's acquisition of its own shares would be to increase the investment in Movie Corporation account (debit) and decrease investment income account (credit) for the difference between the original investment value and the new proportionate net assets of Movie Corporation. Option D is the correct journal entry that reflects these changes. Option A is incorrect because it does not adjust the investment value. Option B is incorrect because it does not consider the change in noncontrolling interest. Option C is incorrect because it only adjusts the investment income, not the investment value.

Cinema Company Acquired 70 Percent of Movie Corporation's Shares on December