Pursley, Inc. acquires 10% of Ritz Corporation on January 3, 2017, for $80,000 when the book value of Ritz was $800,000. Pursley adjusted the investment to its fair value of $162,500 at December 31, 2017. During 2017 Ritz reported net income of $125,000 and paid dividends of $30,000. On January 10, 2018, Pursley purchased an additional 20% of Ritz for $325,000, giving Pursley the ability to significantly influence the operating policies of Ritz. Any excess of cost over book value is attributable to goodwill with an indefinite life. What journal entry(ies) is(are) required on January 1, 2018?
What will be an ideal response?
| Investment in Ritz | 325,000 | |
| Cash | 325,000 | |
| To record the purchase of an additional 20% share in Ritz Corporation | ||
? | ||
| ? | ||
| Additionally, if the fair value of the original 10% shares differed on January 10, 2018, than it did on December 31, 2017, Pursley would record the adjustment to the investment account so that the proper allocation of excess payment to goodwill could be prepared when the ownership percentage required use of the equity method of accounting on January 10, 2018. | ||
Business
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