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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 from Sub in 20X1. b. Prepare Parent’s journal entry to record dividends received from sub in 20x1. c. Prepare Parent's journal entry to record amortization of acquisition differential in 20x1. d. Prepare the three 12/31/x1 consolidation/elimination/reclassification entries.

Solutions

Expert Solution

a. journal entry in Parent Corp to record Sub's income:

Investment in Subsidiary Dr 62,000

To Income from Subsidiary 62,000

b. Journal entry to record dividend received from subsidiary:

Cash account Dr 18,000

To Investment in Subsidiary 18,000

c. Journal entry to amortize acquistion differential

Depreciation expense Dr 4,000

To Accumulated Deperciation 4,000

d. Elimination entries:

1. Income from subsidiary dr 62,000

ToDividends 18,000

To Investment in Subsidiary 44,000

2. Equity and Retained earnings in Sub Dr. 300,000

Equipment account Dr 40,000

Goodwill account dr 50,000

To Investment in Sub 390,000

Workings:

Consideration paid        390,000.00
Fair value        340,000.00
Goodwill          50,000.00
Equipment increased fair value          40,000.00
Life                   10.00
Amortization per year             4,000.00

ekkarill92 answered 2 years ago
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