On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidia
ID: 2602378 • Letter: O
Question
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
20X1
20X2
Net income
$50,000
$90,000
Dividends
10,000
20,000
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill
Complete the consolidating worksheet for December 31, 20X2. (8 points) Prepare your own worksheet from the following and complete.
20X1
20X2
Net income
$50,000
$90,000
Dividends
10,000
20,000
Explanation / Answer
Parent Co. Sub Co. Debit Credit Consolidated Inc Statement NCI Controlling Retained Dec 31, 20X2 Earnings Consolidated Balance Sheet Inventory Dec 31 60000 40000 100000 Common Stock 40000 Other paid in capital 120000 Retained Earnings 190000 Other current assets 118000 180000 298000 Investment in Sub Co. Land 60000 80000 140000 Buildings and Equipment 350000 300000 650000 Accum Depreciation (120000) (50000) (170000) Current Liabilities (150000) (40000) (190000) Bonds Payable (50000) (50000) Other Long Term Liabilities (100000) (100000) Common Stock (100000) (100000) Other Paid in Capital (200000) (200000) Retained Earnings (200000) (200000) Common Stock (Sub) (40000) Other Paid in Capital (Sub) (120000) Retained Earnings (Subs) (230000) Net Sales (550000) (400000) (950000) (950000) Cost of goods sold 320000 210000 530000 530000 Operating Expenses 130000 100000 230000 230000 Net Income (100000) (90000) (190000) (172000) Subsidiary Income (72000) (72000) (72000) Dividend declared Parent) 50000 50000 50000 Dividend declared (Sub) 20000 20000 Consolidated Net Income (172000) (172000) NCI (34400) (34400) Controlling Interest (137600) (137600) Total NCI (34400) (34400) Retained Earnings (384000) (384000) Contr Int 12-31 (307200) (307200)