Reference no: EM132800624
Question - On January 5, 2020 Petra Corporation purchased for cash 5,100 of the 21,250 outstanding common shares of Lindstrom Company. On the date of acquisition, the book value of assets subject to depreciation, as reported by Lindstrom on its Statement of Financial Position, was $150,000 whereas the fair value of these assets was $375,000. All other assets and liabilities reported by Lindstrom had book values that were equal to fair values. Lindstrom's depreciable assets have a 10-year remaining useful life and are being depreciated under the straight-line method.
During the first quarter of 2020, Lindstrom declared and paid total cash dividends to its shareholders in the amount of $160,000. Later in the year, on September 21, 2020, Lindstrom announced a 10% common stock dividend which was distributed to shareholders on October 15, 2020. For the year ended December 31, 2020, Lindstrom reported net income of $150,000.
Petra Corporation appropriately used the equity method to account for this investment. On December 31, 2020, the investment account showed a balance of $254,475.
Required -
a) Calculate the acquisition cost of Petra Corporation's investment in Lindstrom Company on January 5, 2020. Make a schedule to support your answer.
b) Assume that on January 2, 2021, Petra Corporation sold 20% of its investment in Lindstrom Company for $55.00 per share. Make the journal entry to record the sale.