A parent company acquired 80% of the stock of a subsidiary company on January 1, 2015, for
Question:
A parent company acquired 80% of the stock of a subsidiary company on January 1, 2015, for $360,000.On this date, the balances of the subsidiary's stockholders' equity accounts were Common Stock, $260,000, and
retained Earnings, $28,000.
On January 1, 2015 the market value for the 20% of shares not purchased by the parent was $88,000.
On January 1, 2015, the subsidiary's recorded book values were equal to fair values for all items except four:
(1) accounts receivable had a book value of $60,000 and a fair value of $52,000,
(2) property plant & equipment, net had a book value of $100,000 and a fair value of $136,000, (3) patents had a book value of $70,000 and a fair value of $154,000, and
(4) notes payable had a book value of $40,000 and a fair value of $28,000.
Both companies use the FIFO inventory method and sell all of their inventories at least once per year.The year-end net balance of accounts receivables is collected in the following year.
On the acquisition date, the subsidiary's property plant & equipment, net had a remaining useful life of 5 years, the patents had a remaining useful life of 7 years, and notes payable had a remining term of 4 years.
On December 31, 2017, the parent sold a building to the subsidiary for $130,000. On this date, the building was carried on the parent's books (net of accumulated depreciation) at $100,000. Both companies estimated that the building has a remaining life of 5 years on the intercompany sale date, with no salvage value.
Each company routinely sells merchandise to the other company, with a profit margin of 30% of selling price (regardless of the direction of the sale). During 2019, intercompany sales amount to $48,000 of which $28,000 of merchandise remains in the ending inventory of the subsidiary.On December 31, 2019, $16,000 of these intercompany sales remain unpaid. Additionally, the parent's December 31, 2018 inventory includes $22,000 of merchandise purchased in the preceding year from the subsidiary.During 2018, intercompany sales amount to $40,000, and on December 31, 2018, $13,500 of these intercompany sales remain unpaid.
The parent accounts for its Investment in the subsidiary using the cost method. The pre-consolidation financial statements for the two companies for the year ended on December 31, 2019 are provided on the next page.
Required:
1.what are the AAP components (identifiable and non-identifiable).
2. what are analysis of the AAP amortization.
3. what are analysis for the intercompany transactions.
4. what are structure for the two NCI accounts (NCI-Equity, and NCI-Income).
5.what are consolidating entries. (E-Entry, A-Entry, D-Entry, I-Entry, C-Entry, Adj-Entry)
Fundamentals of Advanced Accounting
ISBN: 978-0077862237
6th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik