On January 1,20X9,Princeton Company acquired 80 percent of the common stock and 60 percent of the preferred stock of Stanford Company,for $400,000 and $60,000,respectively.At the time of acquisition,the fair value of the common shares of Stanford Company held by the noncontrolling interest was $100,000.Stanford Company's balance sheet contained the following balances:
Preferred Stock ($5 par value)$ 100,000
Common Stock ($10 par value)200,000
Retained Earnings 300,000
Total Stockholders' Equity $ 600,000
For the year ended December 31,20X9,Stanford Company reported net income of $100,000 and paid dividends of $40,000.The preferred stock is cumulative and pays an annual dividend of 10 percent.
-Based on the preceding information,the consolidating entry to prepare the consolidated financial statements for Princeton Company as of December 31,20X9 will include a credit to Investment in Stanford Company-Common Stock for:

Question

On January 1,20X9,Princeton Company acquired 80 percent of the common stock and 60 percent of the preferred stock of Stanford Company,for $400,000 and $60,000,respectively.At the time of acquisition,the fair value of the common shares of Stanford Company held by the noncontrolling interest was $100,000.Stanford Company's balance sheet contained the following balances:
Preferred Stock ($5 par value)$ 100,000 
Common Stock ($10 par value)200,000 
Retained Earnings 300,000 
Total Stockholders' Equity $ 600,000
For the year ended December 31,20X9,Stanford Company reported net income of $100,000 and paid dividends of $40,000.The preferred stock is cumulative and pays an annual dividend of 10 percent.
-Based on the preceding information,the consolidating entry to prepare the consolidated financial statements for Princeton Company as of December 31,20X9 will include a credit to Investment in Stanford Company-Common Stock for:

Quizplus · Accepted Answer

To prepare consolidated financial statements, we need to eliminate the investment in the common stock of Stanford Company and the retained earnings in the equity section of Stanford Company. The calculation of the elimination entry is as follows:

Total Cost of Investment: (80% of $400,000) + (60% of $60,000) = $344,000

Noncontrolling Interest: 20% of fair value of common stock = 20% of $100,000 = $20,000

Total Equity of Stanford Company: $600,000

Elimination of Investment in Common Stock: (80% x $200,000 common stock) = $160,000

Elimination of Retained Earnings: (80% x $300,000 retained earnings) = $240,000

Elimination of Preferred Stock Dividend: $5,000 ($50,000 x 10%)

Consolidated Total Equity: ($600,000 + $100,000 + $20,000) - $240,000 = $480,000

Consolidated Investment in Stanford Company:
$344,000 - $160,000 - $5,000 = $179,000

Therefore, the consolidating entry to prepare the consolidated financial statements for Princeton Company as of December 31,20X9 will include a credit to Investment in Stanford Company-Common Stock for $448,000.

On January 1,20X9,Princeton Company Acquired 80 Percent of the Common