On January 1, 2016, Parent Company purchased 80% of the common stock of Subsidia
ID: 2595420 • Letter: O
Question
On January 1, 2016, Parent Company purchased 80% of the common stock of Subsidiary Company for $320,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $45,000, $125,000, and $195,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
2016
2017
Net income
$60,000
$80,000
Dividends
15,000
15,000
On January 1, 2016, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $7,000 more than cost. The inventory was sold in 2016. Building, which was worth $20,000 more than book value, has a remaining life of 10 years, and straight-line depreciation is used. Any remaining excess is goodwill.
Prepare all necessary elimination entries for the consolidating worksheet of December 31, 2017. Assume Parent uses the simple equity method of accounting for its investment in Subsidiary.
What is the NCI share of consolidated income for the year – show computations?
2016
2017
Net income
$60,000
$80,000
Dividends
15,000
15,000
Explanation / Answer
Elimination entry year end:
Investment in subsidiary:
NCI share of net income:
Elimination entry: Account Debit Credit Common stock 45,000 Paid in capital 125,000 Retained earnings 305,000 Investment in Subsidiary 399,200 Inventory - Building 16,000 Goodwill 8,000 Non controlling interest 99,800 Total 499,000 499,000