In: Accounting
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
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)