Prime Company acquired 90 percent of the outstanding voting common stock of Orr Company 2010 January 1, for USD 7,560,000 cash. Prime Company uses the equity method. During 2010 Orr reported USD 1,512,000 of net income and paid USD 504,000 in cash dividends. The stockholders" equity section of the 2009 December 31, balance sheet for Orr follows:
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Stockholders" equity:
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Paid-in capital:
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Common stock, $21.00 par
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6,720,000
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Retained earnings
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1,680,000
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Total stockholders" equity
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$8,400,000
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a. Prepare general journal entries to record the investment and the effect of Orr"s earnings and dividends on Prime Company"s accounts.
b. Prepare the elimination entry that would be made on the work sheet for a consolidated balance sheet as of the date of acquisition.