On January 1, 2020, Parent Company purchased 80% of the common stock of Subsidiary Company for...

On January 1, 2020, Parent Company purchased 80% of the common stock of Subsidiary Company for $320,000.

On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively.
Net income and dividends for Subsidiary Company were $50,000 and $10,000, respectively.
Parent Company has used the simple equity method for recording the Subsidiary income and dividends.
On January 1, 2020, the only tangible assets of Subsidiary that were undervalued were inventory and equipment. Inventory was worth $5,000 more than cost. Equipment, which was worth $15,000 more than book value, has a remaining life of 5 years, and straight-line depreciation is used. Any remaining excess is goodwill.

The following trial balances of the two companies are prepared on December 31, 2020.

	Parent	Subsidiary
Investment in Sub	352,000
Current Assets	132,000	180,000
Inventory	60,000	40,000
Equipment	350,000	300,000
Accumulated Depreciation	(120,000)	(50,000)
Goodwill
Bond Payable	(134,000)	(80,000)
CS-Par	(100,000)
PIC-Par	(200,000)
RE-Par	(200,000)
CS-Sub		(40,000)
PIC-Sub		(120,000)
RE-Sub		(190,000)
Sales	(550,000)	(400,000)
Expense	450,000	350,000
Depreciation Expense
Sub Income	(40,000)
Dividend Declared - Sub		10,000
Totals	0	0

Required:

d. Prepare the consolidated worksheet.

e. Prepare the 2020 consolidated income statement and balance sheet.

Expert Solution

	Parent	Subsidiary	Adjustments
Investment in Sub	352000		-352000	0
Current Assets	132000	180000		312000
Inventory	60000	40000	5000	105000
Equipment	350000	300000	15000	665000
Accumulated Depreciation	-120000	-50000	-3000	-173000
Goodwill			30000	30000
Bond Payable	-134000	-80000		-214000
CS-Par	-100000	-40000	40000	-100000
PIC-Par	-200000	-120000	120000	-200000
RE-Par	-200000	-190000	190000	-200000
Sales	-550000	-400000	80000	-870000
Expense	450000	350000	-70000	730000
Depreciation Expense			3000	3000
Sub Income	-40000		40000	0
NCI			-88000	-88000
Dividend Declared - Sub		10000	-10000	0

Depreciation differential
Equipment	=excess of fairvalue over book value/useful life
	=15000/5
	3000

Acquisition analysis

Net asset value
Common stock	40000
PIC	120000
Retained earnings	190000
Net asset at book value	350000
Excess of fair value over book value
Inventory	5000
Equipment	15000
Net asset at fair value	370000
80% share parent	296000
Purchase price	320000
Goodwill	24000

NCI at fair value	=320000/0.80*0.20
	80000
NCI goodwill	=80000-74000
	6000


NCI
Fair Value	80000
Net income	10000
Dividends	2000
Balance	88000

Consolidated income
	Parent	Subsidiary	Adjustments	Consolidated
Sales	550000	400000	-80000	870000
Expense	-450000	-350000	70000	-730000
Depreciation Expense	0	0	-3000	-3000
Sub Income	40000	0	-40000	0
	140000	50000	0	137000

Statement of retained earnings
Beginning balance	200000	190000	-190000	200000
Net income	140000	50000	-53000	137000
Dividends		-10000	10000	0
End balance	340000	230000	-233000	337000


Balancesheet
Assets
Investment in Sub	352000		-352000	0
Current Assets	132000	180000		312000
Inventory	60000	40000	5000	105000
Equipment	350000	300000	15000	665000
Accumulated Depreciation	-120000	-50000	-3000	-173000
Goodwill			30000	30000
Total assets	774000	470000		939000

Liabilities
Bond Payable	134000	80000		214000
CS-Par	100000	40000	-40000	100000
PIC-Par	200000	120000	-120000	200000
RE-Par	340000	230000	-233000	337000
NCI			88000	88000
Total liabilities	774000	470000		939000

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