The information shown is available regarding the investments of Billings Corporation in Channel Company for the years 2011–2015. The stockholders’ equity section of Channel Company’s balance sheet has not changed since the January 1, 2010, original sale of preferred stock to the public, except for the balance in the retained earnings account. The stockholders’ equity as of January 1, 2013, is as follows: 6% Cumulative preferred stock ($50 par, liquidation value equals par value) . $ 50,000 Common stock ($10 par) ………………….. 100,000 Paid-in capital in excess of par ………………. 20,000 Retained earnings ……………………. 103,000 Total stockholders’ equity ………………….$273,000 Other relevant facts are as follows: a. On January 1, 2011, Channel has a $60,000 retained earnings balance and there are no dividends in arrears on the preferred stock. b. Any excess of cost over book value on the investment in common stock is viewed as goodwill. c. The 10% interest sold on January 1, 2016, is the interest purchased on January 1, 2011. d. Channel Company income and dividends are as follows for 2011–2015: Billings’s investment account bala Investment in preferred stock: Original cost ……………..$ 30,000 Plus dividends in arrears for 2014 ……. 1, 800 Balance, December 31, 2015 ……….. 31,800 Investment in common stock: January 1, 2011, purchase ………………. $ 25,000 January 1, 2013, purchase ………………. 140,000 2013 Channel income ($30,000 x 60%) ………….. 18,000 2013 Channel dividends ($5,000 x 60%) …………. (3,000) 2014 Channel income ($25,000 x 60%) …………… 15,000 January1, 2015 purchase ………………… 60,000 2015 Channel income ($20,000 x 80%) …………… 16,000 December 31, 2015, sale ……………….. (35,000) Balance, December 31, 2015 ……………….$236,000 Required Assume the investment accounts are to be properly maintained under the simple equity method. Prepare all necessary correcting entries on the books of Billings Corporation as of January 1, 2016. (Assume nominal accounts are open.) All supporting computations and schedules should be in good form. View Solution:
The information shown is available regarding the investments of Billings