On January 1, 2011, Parent Company Purchased 80% of the common stock of Subsidiary Company for...

On January 1, 2011, Parent Company Purchased 80% of the common stock of Subsidiary Company for $402,000. On this date, Subsidiary had total owners' equity of $440,000. Land was undervalued by $20,000, Equipment with a 5-year remaining life was undervalued by $15,000 and inventory was undervalued by $10,000. Any other excess of cost over book value is due to goodwill. Parent accounts for its investment in Subsidiary using the simple equity method.

1) Prepare the Determination and Distribution of Excess Schedule

2) Make all of the entries pertaining to eliminating the investment in Sub's Common Stock

Expert Solution


Price paid for investment.				402,000
Less book value of interest acquired:
	Total equity	440,000
	Interest acquired	80%		352,000
Excess of cost over book value (debit)				50,000		Amortization
Existing goodwill				-
Excess available				50,000
Adjustments:
	Depreciable fixed assets
	Land			16,000
	Equipment			12,000	5 debit	2400
	Inventory			8,000
	Goodwill			14,000
	Extraordinary gain			-
	Total adjustments			50,000

	Journal Entry

EL	Shareholders Equity- Subsidiary		352,000
	Investment in Subsidiary Company			352,000
	( To eliminate prorate share of the beginning of the year subsidiary equity balance)

D	Land		16,000
	Equipmet		12,000
	Inventory		8,000
	Goodwill		14,000
	Investment in Subsidiary Company			50,000
	( To distribute excess per determination and distribution of excess schedule)

A	Depreciation expense		2400
	Accumulated Depreciation			2400
	( to amortise excess for the current year)

ekkarill92 answered 2 years ago

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