ACT506

Module 1 Critical Thinking Assignment

Option #1

Peerless Products (parent company) purchased on January 02, 20x7, Special Foods (subsidiary) for $300,000.

Information for acquisition entry for January 02, 20x7.

Peerless Products Fair Value Consideration:

$300,000

Special Foods book value of equity:

Common stock

$100,000

Paid in capital

50,000

Retained earnings

150,000

1). Required entry for investment equity using cash

1/2/20x7

Debit

$xxxx

Credit

$xxxx

2). Information to complete the parent company January to December 20x7 entries

Parent

Subsidiary

Common stock, January 02, 20x7

$600,000

$100,000

Paid in capital

100,000

50,000

Retained earnings

300,000

150,000

Separate operating income - parent

200,000

Net income - subsidiary

100,000

Dividends

100,000

50,000

2A).

Parent company entry for the year

Debit

$xxxx

Credit

$xxxx

Record of parent 100% share of subsidiary 20x7 income

2B)

Parent company entry of the year

Debit

$xxx

Credit

$XXX

Record parent 100% share of subsidiaries 20x7 dividend

3).

Book value calculation for investment value on December 30, 20x7

Total investments

equals

Common stock

Paid In capital

Retained earnings

Original book value

$xxx

$xxx

$xxx

$xxx

Net income

XXX

XXX

Less dividends

XXX

XXX

Ending book value

XXX

XXX

XXX

XXX