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Calculating Revenue Profit & Capital Profit and passing Journal Entry.
Bon Air, Inc., acquired 70 percent (2,800 shares) of the outstanding voting stock of Creedmoor Corporation on January 1, 2004, for $250,000 cash Creedmoor's net assets on that date totaled $230,000, but this balance included three accounts having fair values that differed from their book values:
Book Value
Fair Value
Land ................................................................................................
$30,000
$ 40,000
Equipment (14-year life) ............................................................
50,000
118,000
Liabilities (10-year life) ...............................................................
(70,000)
(50,000)
As of December 31, 2007, the two companies report the following balances:
Bon Air
Creedmoor
Revenues
$ (694,800)
$(250,000)
Operating expenses
630,000
180,000
Investment income
(44,200)
-0-
Net income
$ (109,000)
$ (70,000)
Retained earnings, 1/1/07
$ (760,000)
$(260,000)
(109,000)
Dividends paid
68,000
10,000
Retained earnings, 12/31/07
$ (801,000)
$(320,000)
Current assets
$ 72,000
$ 120,000
Investment in Creedmoor Corp
321,800
Land
241,000
Buildings (net)
289,000
200,000
Equipment (net)
165,200
40,000
Total assets
$ 1,089,000
$ 410,000
Liabilities
$ (180,000)
$ (50,000)
Common stock
(40,000)
Additional paid-in capital
(58,000)
(801,000)
(320,000)
Total liabilities and equities
$(1,089,000)
$(410,000)
If Bon Air sells 400 shares of this stock on December 31, 2007, for $60,000 cash, what journal entry is recorded?
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