Question

Albuquerque, Inc., acquired 36,000 shares of Marmon Company several years ago for $900,000. At the acquisition date, Marmon reported a book value of $950,000, and Albuquerque assessed the fair value of the noncontrolling interest at $100,000. Any excess of acquisition-date fair value over book value was assigned to broadcast licenses with indefinite lives. Since the acquisition date and until this point, Marmon has issued no additional shares. No impairment has been recognized for the broadcast licenses.At the present time, Marmon reports $940,000 as total stockholders’ equity, which is broken down as follows: Common stock ($10 par value) $ 300,000 Additional paid-in capital 430,000 Retained earnings 210,000 Total $ 940,000 View the following as independent situations: a. & b. Marmon sells 10,000 and 2,000 shares of previously unissued common stock to the public for $42 and 22 per share. Albuquerque purchased none of this stock. What journal entry should Albuquerque make to recognize the impact of this stock transaction?

Answer 1

Answer:

No Journal entries will be required in either instance. But a note to the financial statement would be appropriate in explaining the declining stake in Marmon Inc.

Explanation:

A. Total share valuation was $1,000,000. ($900,000 + $110,000) which is made up of Albuquerque's holdings and the non controlling interests. This is equivalent holding of 89% by Albuquerque.

*the investment would have been recognized at cost to Albuquerque at $900,000.

But when Marmon sold additional 10,000 shares the interest reduces to 63%

*This wouldn't necessitate any journal entry by Albuquerque as a result of the additional issues of shares but the % stake in Marmon would show to have reduced as a note in its financial records.

And when a further 2,000 was issued Albuquerque stake drops to 61%

* Again this wouldn't necessitate any journal entry by Albuquerque as a result of the additional issues of shares but the % stake in Marmon would show to have reduced as a note in its financial records.