The following balances were taken from the records of S Company:
- Common stock (1/1/11 and 12/31/11) $720,000
- Retained earnings 1/1/11 $160,000
- Net income for 2011 180,000
- Dividends declared in 2011 (40,000)
- Retained earnings, 12/31/11 300,000
- Total stockholders' equity on 12/31/11 $1,020,000
P Company purchased 25% of S Company's common stock on January 1, 2011 for $300,000 for cash. The difference between implied value and book value is attributable to fixed assets with a remaining useful life on January 1, 2011 of ten years.
P can exert significant influence over S.
Required:
A. What is the journal entry to record the purchase of S Company?
B. What is the differential on the transaction?
C. What journal entries will P record for S's activity in 2011