Question

In: Accounting

Assume that on January 1, 2009, a parent company acquired a 90% interest in a subsidiary's...

Assume that on January 1, 2009, a parent company acquired a 90% interest in a subsidiary's voting common stock. On the date of acquisition, the fair value of the subsidiary's net assets equaled their reported book values. On January 1, 2011, the subsidiary purchased a building for $486,000. The building has a useful life of 10 years and is depreciated on a straight-line basis with no salvage value. On January 1, 2013, the subsidiary sold the building to the parent for $420,000. The parent estimated that the building had an 8 year remaining useful life and no salvage value. The parent also uses the straight-line method of amortization. The parent's "stand-alone" income (i.e., net income before recording any adjustments related to pre-consolidation investment accounting) is $500,000. The subsidiary's recorded net income is $115,000.

Intercompany sale of depreciable assets
Consolidated net income attributable to the controlling interest:

$578,930

Please show your calculation.

Solutions

Expert Solution

Calculation of Book value of the building as on the date of sale:

Cost of Building as at Jan 1, 2011 $         486,000
Less: depreciation for 2011 $           48,600
Less: depreciation for 2012 $           48,600
Book Value as at Jan 1, 2013 $         388,800

Calculation of Increase in book value and the depreciation expense for the building

Particulars Subsidiary Parent Change
Book Value $         388,800 $      420,000 $         31,200
Depreciation for 2013 $           48,600 $         52,500 $           3,900

Calculation of Parents's share of adjusted profit of subsidiary

Subsidiary net income $         115,000
Less: gain on sale of Building $         (31,200)
Add: Reversal of Excess depreiciation for 2013 $              3,900
Adjusted Net Income of Subsidiary $           87,700
Parent's Share (controlling interest) $           78,930

Calculation of Consolidated net income attributable to the controlling interest:

Parent's Net Income $         500,000
Parents Share of subsidiary income $           78,930
Consolidated net income attributable to the controlling interest $         578,930

For any clarification, please comment. Kindly Up Vote

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Assume that on January 1, 2012, a parent company acquired a 80% interest in a subsidiary’s...
Assume that on January 1, 2012, a parent company acquired a 80% interest in a subsidiary’s voting common stock. On the date of acquisition, the fair value of the subsidiary’s net assets equaled their reported book values. On January 1, 2014, the subsidiary purchased a building for $336,000. The building has a useful life of 8 years and is depreciated on a straight-line basis with no salvage value. On January 1, 2016, the subsidiary sold the building to the parent...
Assume that a Parent company acquires a 90% interest in its Subsidiary on January 1, 2016....
Assume that a Parent company acquires a 90% interest in its Subsidiary on January 1, 2016. On the date of acquisition, the fair value of the 90% controlling interest was $2,160,000 and the fair value of the 10% noncontrolling interest was $240,000. On January 1, 2016, the book value of net assets equaled $2,400,000 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 subsidiary’s...
Assume that a Parent company acquires a 90% interest in its Subsidiary on January 1, 2016....
Assume that a Parent company acquires a 90% interest in its Subsidiary on January 1, 2016. On the date of acquisition, the fair value of the 90% controlling interest was $2,160,000 and the fair value of the 10% noncontrolling interest was $240,000. On January 1, 2016, the book value of net assets equaled $2,400,000 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 subsidiary’s...
Assume that a parent company acquired 80% of a subsidiary on January 1, 2014. The purchase...
Assume that a parent company acquired 80% of a subsidiary on January 1, 2014. The purchase price was $175,000 in excess of the subsidiary’s book value of Stockholders’ Equity on the acquisition date, and that excess was assigned entirely to an unrecorded Patent owned by the subsidiary. The assumed economic useful life of the patent is 10 years. Assume that subsidiary sells inventory to the parent. The parent, ultimately, sells the inventory to customers outside of the consolidated group. You...
On January 1, 2009, Father Company acquired an 80 percent interest in Sun Company for $425,000....
On January 1, 2009, Father Company acquired an 80 percent interest in Sun Company for $425,000. The acquisition-date fair value of the 20 percent noncontrolling interest's ownership shares was $102,500. Also as of that date, Sun reported total stockholders' equity of $400,000: $100,000 in common stock and $300,000 in retained earnings. In setting the acquisition price, Father appraised four accounts at values different from the balances reported within Sun's financial records. Buildings (8-year life) Undervalued by $20,000 Land. Undervalued by...
Parent Company acquired 90% of Son Inc. on January 31, 20X2 in exchange for cash. The...
Parent Company acquired 90% of Son Inc. on January 31, 20X2 in exchange for cash. The book value of Son's individual assets and liabilities approximated their acquisition-date fair values. On the date of acquisition, Son reported the following: Cash $ 350,000 Current Liabilities $ 120,000 Inventory 100,000 Plant Assets (net) 320,000 Common Stock 100,000 Property 500,000 Retained Earnings 1,050,000 Total Assets $ 1,270,000 Total Liabilities & Equity $ 1,270,000 During the year Son Inc. reported $310,000 in net income and...
Assume that a Parent company acquires an 80% interest in its Subsidiary on January 1, 2020....
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...
Assume that a Parent company acquires a 75% interest in its Subsidiary on January 1, 2016....
Assume that a Parent company acquires a 75% interest in its Subsidiary on January 1, 2016. On the date of acquisition, the fair value of the 75% controlling interest was $1,800,000 and the fair value of the 25% noncontrolling interest was $600,000. On January 1, 2016, the book value of net assets equaled $2,400,000 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...
Parent corp purchased 100% of Subsidiary's common stock on January 1, 20x1, for $390,000. On that...
Parent corp purchased 100% of Subsidiary's common stock on January 1, 20x1, for $390,000. On that date, Subsidiary reported net assets with a historical cost of $300,000 and a fair value of $340,000. The fair value difference was due to the increased value of equipment with a remaining life of 10 years. During 20X1 and 20X2 Subsidiary reported net income of $62,000 and $50,000 and paid dividends of $18,000 and $14,000 respectively. a. Prepare Parent’s journal entry to record income...
A parent company acquired 100 percent of the stock of a subsidiary company on January 1,...
A parent company acquired 100 percent of the stock of a subsidiary company on January 1, 2013, for $800,000. On this date, the balances of the subsidiary’s stockholders’ equity accounts were Common Stock, $50,000, Additional Paid-in Capital, $55,000, and Retained Earnings, $195,000. On the acquisition date, the excess was assigned to the following AAP assets: Original Amount Original Useful Life Property, plant & equipment 300,000 10 years Customer list 200,000 8 years Royalty agreement 180,000 8 years Goodwill 120,000 Indefinite...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT