On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidia
ID: 2602731 • 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
JOURNAL ENTRIES FOR CONSOLIDATION
DATE
DETAILS
AMOUNT $
DEBIT A/C
CREDIT A/C
20X1
JAN 1
DEC 31, 20X1
DEC 31, 20X2
1.
AMOUNT PAID TO SUBSIDIARY FOR 80% OWNERHSIP OF COMMON STOCK
316,000
COST OF CONTROL
CASH
2.
TRANSFER OF UNDERVALUATION IN INVENTORY, $5000 IN RATIO OF 80:20
4000
COST OF CONTROL
1000
NCI
5000
INVENTORY
3. TRANSFER OF UNDERVALAUATION IN BUILDING $ 15,000 IN RATIO OF 80:20
12000
COST OF CONTROL
3000
NCI
15000
BUILDING
4.
TRANSFER OF CONTROL SHARE CAPITAL 80%, WITH NCI 20%
32000
COMMON STOCK
COST OF CONTROL
8000
COMMON STOCK
NCI
5.
TRANSFER OF RETAINED EARNINGS
152000
RETAINED EARNINGS
COST OF CONTROL
38000
RETAINED EARNINGS
NCI
6.
GOODWILL BEING THE DIFFERENCE IN COST OF CONTROL
116000
GOODWILL
COST OF CONTROL
7.
TRANSFER OF PROFIT IN YEAR 20X1 AFTER ADJUSTING FOR DEPRPECIATION FOR BUILDING $1875 ( $50,000 - $1875)
48125
PROFIT FOR YEAR 20X1 OF SUBSIDIARY
38500
RETAINED EARNINGS OF PARENT
9625
NCI
8.
TRANSFER OF PROFIT IN YEAR 20X2 AFTER ADJUSTING FOR DEPRPECIATION FOR BUILDING $1875 ( $90,000 - $1875)
88125
PROFIT FOR YEAR 20X2 OF SUBSIDIARY
70500
RETAINED EARNINGS OF PARENT
17625
NCI
JOURNAL ENTRIES FOR CONSOLIDATION
DATE
DETAILS
AMOUNT $
DEBIT A/C
CREDIT A/C
20X1
JAN 1
DEC 31, 20X1
DEC 31, 20X2
1.
AMOUNT PAID TO SUBSIDIARY FOR 80% OWNERHSIP OF COMMON STOCK
316,000
COST OF CONTROL
CASH
2.
TRANSFER OF UNDERVALUATION IN INVENTORY, $5000 IN RATIO OF 80:20
4000
COST OF CONTROL
1000
NCI
5000
INVENTORY
3. TRANSFER OF UNDERVALAUATION IN BUILDING $ 15,000 IN RATIO OF 80:20
12000
COST OF CONTROL
3000
NCI
15000
BUILDING
4.
TRANSFER OF CONTROL SHARE CAPITAL 80%, WITH NCI 20%
32000
COMMON STOCK
COST OF CONTROL
8000
COMMON STOCK
NCI
5.
TRANSFER OF RETAINED EARNINGS
152000
RETAINED EARNINGS
COST OF CONTROL
38000
RETAINED EARNINGS
NCI
6.
GOODWILL BEING THE DIFFERENCE IN COST OF CONTROL
116000
GOODWILL
COST OF CONTROL
7.
TRANSFER OF PROFIT IN YEAR 20X1 AFTER ADJUSTING FOR DEPRPECIATION FOR BUILDING $1875 ( $50,000 - $1875)
48125
PROFIT FOR YEAR 20X1 OF SUBSIDIARY
38500
RETAINED EARNINGS OF PARENT
9625
NCI
8.
TRANSFER OF PROFIT IN YEAR 20X2 AFTER ADJUSTING FOR DEPRPECIATION FOR BUILDING $1875 ( $90,000 - $1875)
88125
PROFIT FOR YEAR 20X2 OF SUBSIDIARY
70500
RETAINED EARNINGS OF PARENT
17625
NCI