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PROBLEM 4-1 Parent Company Entries, Three Methods On January 1, 2004, Perelli Company purchased 90,000 of the 100,000 outstanding shares of common...
PROBLEM 4-1 Parent Company Entries, Three MethodsOn January 1, 2004, Perelli Company purchased 90,000 of the 100,000 outstanding sharesof common stock of Singer Company as a long-term investment. The purchase price of$4,972,000 was paid in cash. At the purchase date, the balance sheet of Singer Company includedthe following:Current assets $2,926,550Long-term assets 3,894,530Other assets 759,690Current liabilities 1,557,542Common stock, $20 par value 2,000,000Other contributed capital 1,891,400Retained earnings 1,621,000Additional data on Singer Company for the four years following the purchase are:2004 2005 2006 2007Net income (loss) $1,997,800 $476,000 $(179,600) $(323,800)Cash dividends paid, 12/30 500,000 500,000 500,000 500,000Required:Prepare journal entries under each of the following methods to record the purchase and allinvestment-related subsequent events on the books of Perelli Company for the four years,assuming that any excess of purchase price over equity acquired was attributable solely to anexcess of market over book values of depreciable assets (with a remaining life of 15 years).(Assume straight-line depreciation.)D. Perelli uses the cost method to account for its investment in Singer.E. Perelli uses the partial equity method to account for its investment in Singer.F. Perelli uses the complete equity method to account for its investment in Singer.
