On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidia
ID: 2602711 • 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
Value of common stock of subsidiary 40000 Interest acquired (80%) 32000 Undervalued assets on Jan 20X1: Inventory (worth $5000 more than cost) 5000 Building (worth $15000 more than book value) 15000 Total 20000 Interest acquired (80%) 16000 Note; The actual values of assets acquired is not given. Date of acquisition Jan 20X1 Amount paid for 80% of Common Stock 316000 Subdidiary: Common Stock 40000 Other paid in capital 120000 Retained Earnings 190000 Total 350000 Interest acquired (80%) 280000 Interest in undervalued assets 16000 Goodwill 20000 Paid for acquisition 316000