Question

Ahmad company (the 80%-owned subsidiary); in 1/5/2018 sold land to Fatima Company (the subsidiary) at selling price $125,000, the cost of land $100,000. During 2020, Fatima Company sold the land at $140,000. Net income for Fatima Company as follows: 2018 2019 2020 Net Profit 80,000 100,000 60,000 Instructions: 1. Journalize the above transactions in Parent Company records and in the Subsidiary Company records. 2. Calculate the Parent company from the subsidiary’s net income? 3. Calculate the Minority interest from the subsidiary’s net income? 4. Prepare the working paper in Journal entries format for 2018; 2019 and 2020?

Answer 1

Answer1.
Ahmad Company (Parent)
General Journal
Date	Account Description	Ref	Debit (in $)	Credit (in $)
1/5/2018	Cash/Bank		125,000
	To Land			100,000
	To Gain on Sale of Land $(125,000 – 100,000)			25,000
	(Being Land sold to Fatima Company – Subsidiary)
Fatima Company (Subsidiary)
General Journal
Date	Account Description	Ref	Debit (in $)	Credit (in $)
1/5/2018	Land		125,000
	To Cash/Bank			125,000
	(Being Land purchased from Ahmad Company –Parent)

Answer2.
Calculation of Ahmad Company’s (Parent) share (80%) in – Fatima’s Company (Subsidiary):
	Year
Description	2018	2019	2020	Total
Net Income	80,000	100,000	60,000	240,000
Add: Profit from Sale of Land	25,000	–	–	25,000
∴ Adjusted Net Income	105,000	100,000	60,000	265,000
Ahmad Company’s share (@: 80%)	84,000	80,000	48,000	212,000

Answer3.
Calculation of Minority Interest (20%) from Fatima’s Company (Subsidiary) Net Income:
	Year
Description	2018	2019	2020	Total
Net Income	80,000	100,000	60,000	240,000
Add: Profit from Sale of Land	25,000	–	–	25,000
∴ Adjusted Net Income	105,000	100,000	60,000	265,000
Minority Interest (@: 20%)	21,000	20,000	12,000	53,000

Answer4.
Working Paper
General Journal
Date	Account Description	Ref	Debit (in $)	Credit (in $)
Year: 2018	Retained Earnings of Ahmad Company		25,000
	To Land			25,000
	(To eliminate unrealised profit on sale of land)
	Net Income		105,000
	To Ahmad Company			84,000
	To Fatima Company			21,000
			130,000	130,000
Date	Account Description	Ref	Debit (in $)	Credit (in $)
Year: 2019	Retained Earnings of Ahmad Company		25,000
	To Land			25,000
	(To eliminate unrealised profit on sale of land)
	Net Income		100,000
	To Ahmad Company			80,000
	To Fatima Company			20,000
			125,000	125,000
Date	Account Description	Ref	Debit (in $)	Credit (in $)
Year: 2020	Net Income		60,000
	To Ahmad Company			48,000
	To Fatima Company			12,000
			60,000	60,000
Note: For Year 2020, Unrealised Profit on Sale of Land is realised.

DO UPVOTE! In case of any doubt, feel free to write in the comment section below.