On January 1, 2020, a parent company acquired 90% of a subsidiary’s outstanding common stock in exchange for 10,000 shares of the parent’s common stock ($10 par value). The parent’s common stock has a $13.50 per share fair value at the date of the transaction. Assume that immediately preceding the acquisition by the parent, the subsidiary had 4,500 shares of common stock outstanding and it was trading at $33 per share. On January 1, 2020, the parent contracts with the selling subsidiary stockholders to issue 1,000 additional shares of the parent’s common stock on April 10, 2021 if fiscal year-end December 31, 2020 consolidated income is greater than $1 million. At the acquisition date, the fair value of this contingent-payment provision is $9,000. Assume that fiscal year-end December 31, 2020 consolidated net income is $1.5 million and that on April 10, 2021 the market value of the parent’s common stock is $18 per share. What journal entries are required in the parent’s pre-consolidation accounting records at January 1, 2020; December 31, 2020 and April 10, 2021?

Answer rating: 100% (QA)

1 On January 1 2020 Investment is Share of Subsidiary Ac Dr 4500 x 90 x 33 133650 Goodwill Ac Dr 1350 Common Stock Ac Cr 10000 x 10 100000 Securities ... View the full answer