In: Accounting
Assume that a Parent company acquires an 80% interest in its Subsidiary on January 1, 2020. On January 1, 2020, the book value of net assets and the fair value of the identifiable net assets equaled the book value of identifiable net assets (i.e. there was no AAP or Goodwill). The parent uses the equity method to account for its investment in the subsidiary.
On December 31, 2021, the Subsidiary company issued $1,000,000 (face) 6 percent, five-year bonds to an unaffiliated company for $1,085,379. The bonds pay interest annually on December 31, and the bond premium is amortized using the straight-line method. This results in annual bond-payable premium amortization equal to $17,076 per year.
On December 31, 2023, the Parent paid $974,229 to purchase all of the outstanding Subsidiary company bonds. The bond discount is amortized using the straight-line method, which results in annual bond-investment discount amortization equal to $8,590 per year.
The Parent and the Subsidiary report the following financial statements for the year ended December 31, 2024:
Income Statement | ||
---|---|---|
Parent | Subsidiary | |
Sales | $1,100,000 | $800,000 |
Cost of goods sold | -440,000 | -450,000 |
Gross Profit | 660,000 | 350,000 |
Income (loss) from subsidiary | 119,995 | |
Bond interest income | 68,590 | |
Bond interest expense | -42,924 | |
Operating expenses | -230,000 | -125,000 |
Net income | $618,585 | $182,076 |
Statement of Retained Earnings | ||
---|---|---|
Parent | Subsidiary | |
BOY Retained Earnings | $4,000,000 | $450,000 |
Net income | 618,585 | 182,076 |
Dividends | -200,000 | -25,000 |
EOY Retained Earnings | $4,418,585 | $607,076 |
Balance Sheet | ||
---|---|---|
Parent | Subsidiary | |
Assets: | ||
Cash | $1,750,000 | $800,000 |
Accounts receivable | 800,000 | 750,000 |
Inventory | 1,200,000 | 250,000 |
Equity Investment | 2,095,393 | |
Investment in subsidiary | 982,819 | |
PPE, net | 14,046,480 | 4,677,227 |
$20,874,692 | $6,477,227 | |
Liabilities and Stockholders’ Equity: | ||
Accounts payable | $1,600,000 | $838,000 |
Current Liabilities | 2,200,000 | 1,100,000 |
Bonds payable | 1,034,152 | |
Long-term Liabilities | 2,226,100 | 950,000 |
Common Stock | 1,162,000 | 398,000 |
APIC | 9,268,007 | 1,550,000 |
Retained Earnings | 4,418,585 | 607,076 |
$20,874,692 | $6,477,227 |
Required
Provide the consolidation entries worksheet for the year ended December 31, 2024.
Account | Debit | Credit | |
---|---|---|---|
[C] | Income (loss) from subsidiary | Answer | Answer |
AnswerDividendsIncome attributable to noncontrolling interestInterest expenseInterest incomeNoncontrolling interestsRetained earnings | Answer | Answer | |
AnswerDividendsIncome attributable to noncontrolling interestInterest expenseInterest incomeNoncontrolling interestsRetained earnings | Answer | Answer | |
Equity investment | Answer | Answer | |
Noncontrolling interest | Answer | Answer | |
[E] | Common stock | Answer | Answer |
APIC | Answer | Answer | |
AnswerDividendsIncome attributable to noncontrolling interestInterest expenseInterest incomeNoncontrolling interestsRetained earnings | Answer | Answer | |
Equity investment | Answer | Answer | |
AnswerDividendsIncome attributable to noncontrolling interestInterest expenseInterest incomeNoncontrolling interestsRetained earnings | Answer | Answer | |
[Ibond] | Bond payable (net) | Answer | Answer |
AnswerDividendsIncome attributable to noncontrolling interestInterest expenseInterest incomeNoncontrolling interestsRetained earnings | Answer | Answer | |
Equity investment | Answer | Answer | |
Investment in bonds (net) | Answer | Answer | |
AnswerDividendsIncome attributable to noncontrolling interestInterest expenseInterest incomeNoncontrolling interestsRetained earnings | Answer | Answer |
If it says "Answer" in the box that is the question/missing data. If it says Answer with a bunch of words after it those are the choices from the drop down menu. (For example the journal entries some of the descriptions are missing along with the debit/credit amount)