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Papke Company acquired 85% of the common stock of Serbin Company in two separate cash transactions. The first purchase of 72,000 shares (60%) on...
Papke Company acquired 85% of the common stock of Serbin Company in two separate cashtransactions. The first purchase of 72,000 shares (60%) on January 1, 2008, cost $490,000.The second purchase, one year later, of 30,000 shares (25%) cost $220,000. Serbin Company’sstockholders’ equity was as follows:2008 2009Common Stock, $5 par $600,000 $600,000Retained Earnings, 1/1 175,000 201,000Net Income 46,000 60,000Dividends Declared, 9/30 (20,000) (25,000)Retained Earnings, 12/31 201,000 236,000Total Stockholders’ Equity, 12/31 $801,000 $836,000On April 1, 2009, after a significant rise in the market price of Serbin Company’s stock,Papke Company sold 21,600 of its Serbin Company shares for $260,000. Serbin Company notifiedPapke Company that its net income for the first three months was $15,000. The sharessold were identified as those obtained in the first purchase. Any difference between impliedand book values relates to goodwill. Papke uses the cost method to account for its investmentin Serbin Company.Required:Prepare the journal entries Papke Company would record on its books during 2009 to accountfor its investment in Serbin Company.
