ABC Parent Company purchased 70% of MNZ Sub?s stock for $170000 , Sub Company ha
ID: 2444915 • Letter: A
Question
ABC Parent Company purchased 70% of MNZ Sub?s stock for $170000 , Sub Company has equity accounts: Common Stock $ 120000 Retained Earnings $80000 MNZ Company Net Income $20000 and Dividends $10000 Instructions: A- Compute the amount paid by ABC parent Company over the cost of acquisition %70 of interest of Sub (assuming that this excess related to Goodwill). B- Using Equity and Cost method: 1 -Prepare the journal entries to record parent share of Subsidiary Income. 2-Prepare the journal entries to eliminate income and intercompany dividends.Explanation / Answer
Solution:
(A). Caluculation:
Common Stock = 1,20,000
Retained Earnings = 80,000
Net Income = 20,000
Common Stock = 10,000
Less: = 1,70,000
= 60,000
Journal Entries:
Common Stock A/c Dr 1,20,000
Retained Earnings A/c Dr 80,000
Net Income A/c Dr 20,000
Dividends A/c Dr 10,000
To Share holder's A/c 2,30,000
( Being Total Liabilities ,Asset Ajusted)
ABC Company Ltd A/c Dr 60,000
To Realisation A/c 60,000
( Being )
(B).
Business Purchase A/c Dr 4,00,000
ABC Company A/c 4,00,000
( Being Business Purchased)
Goodwill A/c Dr 4,00,000
To Business Purchase A/c 4,00,000
( Being Assets , Liabilities are Purhased)