Plum Corporation acquired 80 percent of Saucy Corporation's common shares on January 1,20X7,at underlying book value.At that date,the fair value of the noncontrolling interest was equal to 20 percent of the book value of Saucy Corporation.Saucy prepared the following balance sheet as of December 31,20X8:
On January 1,20X9,Saucy declares a stock dividend of 9,000 shares on its $5 par value common stock.The current market price per share of Saucy stock on January 1,20X9,is $20.
-Based on the preceding information,the investment elimination entry required to prepare a consolidated balance sheet immediately after the stock dividend is issued will include a debit to Additional Paid-In Capital for:

Question

Plum Corporation acquired 80 percent of Saucy Corporation's common shares on January 1,20X7,at underlying book value.At that date,the fair value of the noncontrolling interest was equal to 20 percent of the book value of Saucy Corporation.Saucy prepared the following balance sheet as of December 31,20X8:
  On January 1,20X9,Saucy declares a stock dividend of 9,000 shares on its $5 par value common stock.The current market price per share of Saucy stock on January 1,20X9,is $20.
-Based on the preceding information,the investment elimination entry required to prepare a consolidated balance sheet immediately after the stock dividend is issued will include a debit to Additional Paid-In Capital for:

Quizplus · Accepted Answer

The investment elimination entry required to prepare a consolidated balance sheet immediately after the stock dividend is issued will include the elimination of investment in subsidiary's stockholders' equity accounts and the recognition of the fair value of the noncontrolling interest.

The 9,000 stock dividends represent a distribution of Saucy's retained earnings. The fair value of the stock dividend distributed to Plum is $9,000 x $20 = $180,000. Since Plum owns 80% of Saucy's shares, it will receive 7,200 shares (80% x 9K), which have a total fair value of $144,000 (7,200 shares x $20).

The investment in subsidiary's stockholders' equity accounts have to be adjusted as follows: 
- Debit Investment in Subsidiary: $864,000 - $20,000 = $844,000
- Credit Common Stock: $40,000 
- Credit Retained Earnings: $180,000 (the fair value of the stock dividend)
- Credit Noncontrolling Interest: $144,000 (fair value of the 20% noncontrolling interest) 
- Credit Additional Paid-in Capital: $185,000 [($40,000 / 80%) x 20% + $144,000 - $20,000] 
Therefore, the answer is D) $185,000.

Plum Corporation Acquired 80 Percent of Saucy Corporation's Common Shares