Investee with Preferred Stock Outstanding

Investee with Preferred Stock Outstanding

Reden Corporation purchased 45 percent of Montgomery Company’s common stock on January 1, 20X9, at underlying book value of $288,000. Montgomery’s balance sheet contained the following stockholders’ equity balances:

Preferred Stock ($5 par value, 50,000 shares issued and outstanding)	$250,000
Common Stock ($1 par value, 150,000 shares issued and outstanding)	150,000
Additional Paid-In Capital	180,000
Retained Earnings	310,000
Total Stockholders’ Equity	$890,000

Montgomery’s preferred stock is cumulative and pays a 10 percent annual dividend. Montgomery reported net income of $95,000 for 20X9 and paid total dividends of $40,000.

Required

Give the journal entries recorded by Reden Corporation for 20X9 related to its investment in Montgomery Company common stock.

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