Investee with Preferred Stock Outstanding Reden Corporation purchased 45 percent of Montgomery

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.