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Penny's Concrete: Prepare Journal entries for acquisition of 25% of Cardinal Inc

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Penny's Concrete acquired 25% of the outstanding common stock of Cardinal Inc on January 1, 2005, by paying $1,200,000 for 50,000 shares. Cardinal declared and paid a $0.50 per share cash dividend on June 30 and again on December 31, 2005. Cardinal reported net incomeof $600,000 for the year. At December 31, 2005 the market price of Cardinal's common stock was $30 per share

(a) Prepare the journal enteries for Penny's Concrete fo 2005 assuming Penny's cannot exercise significant influence over Cardinal ( Use the cost method and assume Cardinal common stock should be classified as avaiable for sale.)

(b) Prepare the journal enteries for Penny's Concrete fo 2005 assuming Penny's can exercise significant influence of Cardinal. ( Use the equity method)

(c) In tabular form indicate the investment and income account balances at December 31.2005 under each methond of accounting.

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Solution Summary

In a very clear Excel format, the solution show all the entries, the T-accounts and some explanations.

Solution provided by:
Manal Elkhoshkhany, MBA
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
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