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In: Accounting

On January 1, 20X7 Quick Company acquired 100 percent of Sluggish Company's stock when Sluggish reported...

On January 1, 20X7 Quick Company acquired 100 percent of Sluggish Company's stock when Sluggish reported book values as follows: assets of $1,200,000; liabilities of $450,000; common stock of $350,000; and retained earnings of $400,000. At the date of acquisition, the book values and the fair values of Sluggish's assets and liabilities were equal. For 20X7, Sluggish reported net income of $500,000, and paid dividends of $25,000.

Give the eliminating entry needed on December 31, 20X7, to prepare consolidated financial statements

Solutions

Expert Solution

1.                                                 Jounral Entry dec 31 2007

                                             Profit and Loss from sluggish company A/c     500000

                                                           To Retained earning A/c                                      500000

                                     (Being profit of subsidiary company transferred)

2.                                                   Dividend Received A/c Dr                25000

                                                             To Cost of investment of sluggish A/c    25000

                                             (being dividend amount reduced from the cost of acquisition amt)


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