Parent Company purchased a 90% interest in Subsidiary Company on January 1. 2011, for $675,000. Any excess
Question:
Parent Company purchased a 90% interest in Subsidiary Company on January 1. 2011, for $675,000. Any excess cost was attributed to goodwill.
Equity balances for Subsidiary Company on January 1. 2011 were as follows:
Common Stocks 200,000
Paild-in Capital 100,000
Retained Earnings 300,000
Subsidiary sold a machine to Parent for $30,000 on January 1. 2014. Subsidiary's cost of the machine was $20,000. The machine has a 5-year life and is being depreciated on a straight-line basis.
During 2016, Parent sold merchandise to Subsidiary for $50.000. Parent records a 30% gross profit on the sale. $20,000 of the goods held by Subsidiary, purchased from Parent, is still in inventory at year-end.
Subsidiary issued $200,000 of face value, 9% bonds to yield 10% effective interest on January 1, 2008. On December 31, 2015, the amortized balance was $192,418. On December 31, 2015, Parent purchased % the bonds for $89,186 to yield 12% effective interest. At the time of the purchase, the bonds had 5 years to maturity. Both companies use effective interest amortization
The trial balances of Parent and Subsidiary are inserted on the partial worksheet attached that is dated December 31, 2016.
Parent | Subsid. | |
Inventory | 25000 | 80000 |
Invest. in sub. Stock | 675,000 | |
Invest. in sub. bonds | 90888 | |
Equip. | 371190 | 1522413 |
Acc.Depr. | -200000 | -600000 |
Goodwill | ||
BondsPay. | -200000 | |
Disc. on B/P | 6345 | |
Com. Stock-Parent | -200000 | |
PIC-Parent | -300000 | |
R.E.-Parent | -401376 | |
Com. Stock-Sub | -200000 | |
PIC-Sub | -100000 | |
R.E. -Sub | -500000 | |
Sales | -300000 | -260000 |
COGS | 100000 | 72000 |
Int. Exp. | 19242 | |
Other Exp. | 150000 | 160000 |
Int. Rev | -10702 | |
Totals | 0 | 0 |
Totals
Required:
Write the necessary journal entries for the following eliminations and adjustments necessary to prepare the consolidated worksheet (no need to make the Income Distribution Schedules): mention and briefly explain, including calculations, the correct elimination/adjustment keys against the journal entries:
1. Date alignment
2. Eliminatian of subsidiary equity accounts
3. Distribution of Excess
4. Intercompany sale of equipment
5. Intercompany merchandise sales
6Intercompany purchase of bonds
Advanced Financial Accounting
ISBN: 978-0137030385
6th edition
Authors: Thomas Beechy, Umashanker Trivedi, Kenneth MacAulay