Reference no: EM132937950
On January 1, Year 4, Pas owned 80% of the outstanding common shares of Star. Pas accounts for its investment using the equity method. The balance in the investment account on Jan 1, Year 4, amounted for $165,500. There is no undepleted acquisition differential.
The shareholders' equity of Star on Jan 1, Year 4, was as follows:
Common (ordinary) shares (9,000 shares outstanding) = $42,000
Retained earnings = $126,000
The following events occurred in Year 4:
- Star earned net income $52,000.
- On Mar 1, Year 4, Star issued 3,000 shares at a price of $45 per share. Pas did not acquire any of these shares.
- Star declared and paid out dividends $20,000 on July 31.
- On Dec 31, Year 4, Pas sold 4,500 shares of its investment in Star for 185,000.
Problem 1: Prepare journal entries for March 1, Y4 and Dec 21 Y4.
Problem 2: What is the ending balance of the investment in Star?
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