Parent Corporation paid $400,000 cash for 90% of Subsidiary Corporation's common stock on January 1, 2006,...

Parent Corporation paid $400,000 cash for 90% of Subsidiary Corporation's common stock on January 1, 2006,

when Subsidiary had $300,000 capital stock and $100,000 retained earnings. Th book value of Subsidiary's
assets and liabilities were equal to fair values. During 2006, Subsidiary reported net income of $20,000 and
declared $10,000 in dividends on December 31. Balance sheets for Parent and Subsidiary at December 31, 2006,
are as follows (in thousands):
Parent Subsidiary
Assets
Cash $ 42 $ 20
Receivable - net 50 130

Inventories 400 50
Land 150 200
Equipment - net 600 100
Investment in Subsidiary 409
$ 1,651 $ 500
Liabilities and Equity
Accounts payable 410 80
Dividends payable 60 10
Capital stock 1000 300
Retained earnings 181 110
$ 1,651 $ 500
Required:
1. Prepare consolidated balance sheet working papers for Parent Corporation and Subsidiary for December 31,2006.

Expert Solution

Fair value of consideration given:

Ref	Particulars	Amount

	Cash	4,00,000


a	Total consideration	4,00,000
b	Stake acquired	90%
c=a/b	Fair value of subsidiary	4,44,444.44
d=100%-b	Minority interest	10%
e=c*d	Fair value of minority interest	44,444.44

Investment and NCI movement
Year	Particulars	Investment	NCI	Total

2016	Acquisition date	4,00,000	44,444	4,44,444
2016	Add: share of net income	18,000	2,000	20,000
2016	Less: Dividends	9,000	1,000	10,000
2016	Less: Fair value amortisation	-	-

2016	Closing balance	4,09,000	45,444	4,54,444

Shareholder	Holding	Fair value	Ref	Particulars	Amount

Parent	90%	4,00,000	a	Fair value of entity	4,44,444.44
Non controlling interest	10%	44,444.44	b	Total value without goodwill	4,00,000

Fair value of subsidiary	100%	4,44,444.44	c=a-b	Goodwill	44,444.44


On acqusition date
Value of subsidiary without goodwill

Common stock	3,00,000
Additional paid in capital	-
Retained earnings	1,00,000

Elimination journal at year end:

Account	Debit	Credit

Common stock	3,00,000
Additional paid in capital	-
Retained earnings	1,10,000
Investment in Subsidiary		4,09,000
Inventory	-	-
Building	-	-
Goodwill	44,444
Non controlling interest		45,444

Total	4,54,444	4,54,444

Consolidated balance sheet

Particulars	Parent	Subsidiary	Debit	Credit	Consolidated

Assets

Cash	42,000	20,000	-	-	62,000
Accounts receivable	50,000	1,30,000		-	1,80,000
Inventory	4,00,000	50,000	-	-	4,50,000
Property, plant & equipment	6,00,000	1,00,000	-	-	7,00,000
Land	1,50,000	2,00,000	-	-	3,50,000
Technology	-	-	-	-	-
Goodwill	-	-	44,444	-	44,444
Investment in Subsidiary	4,09,000	-	-	4,09,000	-

Total assets	16,51,000	5,00,000	44,444	4,09,000	17,86,444

Liabilities & Stockholder's Equity


Accounts payable	4,10,000	80,000	-	-	4,90,000
Dividend payable	60,000	10,000	-	-	70,000
Long-term liabilities	-	-	-	-	-
Common stock	10,00,000	3,00,000	3,00,000	-	10,00,000
Additional paid in capital	-	-	-	-	-
Retained earnings	1,81,000	1,10,000	1,10,000	-	1,81,000
Non controlling interest	-	-	-	45,444	45,444

Total liabilities & stockholder's equity	16,51,000	5,00,000	4,10,000	45,444	17,86,444

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