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

ekkarill92 answered 2 years ago

On January 1, 2011, Parent Company Purchased 80% of the common stock of Subsidiary Company for...

On January 1, 2011, Parent Company Purchased 80% of the common stock of Subsidiary Company for $402,000. On this date, Subsidiary had total owners' equity of $440,000. Land was undervalued by $20,000, Equipment with a 5-year remaining life was undervalued by $15,000 and inventory was undervalued by $10,000. Any other excess of cost over book value is due to goodwill. Parent accounts for its investment in Subsidiary using the simple equity method. 1) Prepare the Determination and Distribution of Excess...

On January 1, 20X8, Parent Company purchased 75% of the common stock of Subsidiary Company for...

On January 1, 20X8, Parent Company purchased 75% of the common stock of Subsidiary Company for $360,000. On this date, Subsidiary had common stock, other paid in capital, and retained earnings of $20,000, $130,000, and $200,000, respectively. Any excess of cost over book value is due to goodwill. Parent accounts for the Investment in Subsidiary using cost method. On January 1, 20X8, Subsidiary sold $100,000 par value of 6%, ten-year bonds for $97,000. The bonds pay interest semi-annually on January...

Assume that a Parent company acquires an 80% interest in its Subsidiary on January 1, 2020....

Assume that a Parent company acquires an 80% interest in its Subsidiary on January 1, 2020. On January 1, 2020, the book value of net assets and the fair value of the identifiable net assets equaled the book value of identifiable net assets (i.e. there was no AAP or Goodwill). The parent uses the equity method to account for its investment in the subsidiary. On December 31, 2021, the Subsidiary company issued $1,000,000 (face) 6 percent, five-year bonds to an...

Assume that a parent company acquired 80% of a subsidiary on January 1, 2014. The purchase...

Assume that a parent company acquired 80% of a subsidiary on January 1, 2014. The purchase price was $175,000 in excess of the subsidiary’s book value of Stockholders’ Equity on the acquisition date, and that excess was assigned entirely to an unrecorded Patent owned by the subsidiary. The assumed economic useful life of the patent is 10 years. Assume that subsidiary sells inventory to the parent. The parent, ultimately, sells the inventory to customers outside of the consolidated group. You...

On May 1, 2020, Peters Company purchased 80% of the common stock of Smith Company for...

On May 1, 2020, Peters Company purchased 80% of the common stock of Smith Company for $50,000. Additional data concerning these two companies for the years 2020 and 2021 are: 2020 2021 Peters Smith Peters Smith Common stock $100,000 $25,000 $100,000 $25,000 Other contributed capital 40,000 10,000 40,000 10,000 Retained earnings, 1/1 80,000 10,000 129,000 53,000 Net income (loss) 64,000 45,000 37,500 (5,000) Cash dividends (11/30) 15,000 2,000 5,000 —0— Any difference between book value and the value implied by...

Parent Corporation holds 70 percent of Subsidiary Company's voting common stock. On January 1, 2011, Parent...

Parent Corporation holds 70 percent of Subsidiary Company's voting common stock. On January 1, 2011, Parent paid $500,000 to acquire a building with a 10-year expected economic life. Parent uses straight-line depreciation for all depreciable assets. On December 31, 2016, Subsidiary purchased the building from Parent for $180,000 and resumed the same remaining useful life. Prepare Parent’s adjusting journal entries and the consolidation entries that related to intercompany sale of building for 2018. (Remember to include all necessary reversal journal...

A parent company acquired 100 percent of the stock of a subsidiary company on January 1,...

A parent company acquired 100 percent of the stock of a subsidiary company on January 1, 2013, for $800,000. On this date, the balances of the subsidiary’s stockholders’ equity accounts were Common Stock, $50,000, Additional Paid-in Capital, $55,000, and Retained Earnings, $195,000. On the acquisition date, the excess was assigned to the following AAP assets: Original Amount Original Useful Life Property, plant & equipment 300,000 10 years Customer list 200,000 8 years Royalty agreement 180,000 8 years Goodwill 120,000 Indefinite...

36) On January 1, 2017, Pioneer Company purchased 80% of the common stock of Shipley Company...

36) On January 1, 2017, Pioneer Company purchased 80% of the common stock of Shipley Company for $600,000. At that time, Shipley’s stockholders’ equity consisted of the following: Common stock $220,000 Other contributed capital 90,000 Retained earnings 320,000 During 2017, Shipley distributed a dividend in the amount of $120,000 and at year-end reported a $320,000 net income. Any difference between implied and book value relates to subsidiary goodwill. Pioneer Company uses the equity method to record its investment. No impairment...

Parent purchased Subsidiary on January 1, 2019. The parent uses the equity method to account for...

Parent purchased Subsidiary on January 1, 2019. The parent uses the equity method to account for its investment in its subsidiary. The excess of investment cost over book value was allocated as follows: Equipment (20-year life) $400,000 Customer list (10-year life) 90,000 Patent (5-year life) 125,000 Goodwill 165,000 Total $780,000 Parent regularly sells merchandise to Subsidiary. In 2021, inter-company sales amounted to $60,100, with $18,000 of deferred profit remaining in ending inventory. Year-end inter-company receivables/payables amounted to $24,000. In 2022,...

Parent Inc. is contemplating a tender offer to acquire 80% of Subsidiary Corporation's common stock. Subsidiary's...

Parent Inc. is contemplating a tender offer to acquire 80% of Subsidiary Corporation's common stock. Subsidiary's shares are currently quoted on the New York Stock Exchange at $85 per share. In order to have a reasonable chance of the tender offer attracting 80% of Subsidiary's stock, Parent believes it will have to offer at least $105 per share. If the tender offer is made and is successful, the purchase will be consummated on January 1, 2017. A typical part of...

Question