Question

In: Accounting

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.

Solutions

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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