On Jan 1, 2018 the Parent purchases an 80% interest in the Sub for $575,000.On that date
Question:
On Jan 1, 2018 the Parent purchases an 80% interest in the Sub for $575,000.On that date the Sub had the following Stockholder's Equity:
Common Stock$100,000
Paid in Capital$100,000
Retained Earnings$225,000
Total$425,000
On this date, all The Sub's Assets and Liabilities Book Value = FMV EXCEPT for Inventory which is under-valued by $15,000 and the Equipment that is under-valued by $40,000 with an 8 year remaining useful life.
Intercompany Transactions:
I.Sub sells INVENTORY to the Parent at a 25% Mark-Up.And During the 2020 Year the Sub sold INVENTORY to the Parent amounting to $224,000.At 12/31/20 the Unsold intercompany inventory was $18,000 and on 1/1/20 the Beginning Intercompany Inventory was $15,000.
II.On 1/1/19 the Parent sold a Building to the Sub.The Equipment had an original COST of $620,000 and Accumulated Depreciation of $200,000.The parent sells the building to the Sub for $600,000 with a 10 year remaining useful life.
III.On 1/1/17 the SUB issued to an INDEPENDENT 3rd party, a $1,000,000 Face Value 10 year 6% Bond Payable at 95% interest paid annually on Dec 31st.On Jan 1, 2020 the Parent PURCHASES the Bond for $1,021,000.
REQUIRED:
I.Prepare the Determination & Distribution of Excess Schedule
II.Prepare the Elimination and Adjusting entries for 12/31/20.
III.What is the Consolidated Net Income?
IV.What is the NCI 12/31/20 Value?
V.What is the 12/31/20 Consolidated Retained Earnings Balance?
Assume the Following:
a.Parent uses the Cost Method and the SUB paid a $35,000 dividend and their ending Retained Earnings Balance is $350,000.
b.Parent's Net Income = $550,000 and the SUB $425,000 PRIOR to the Elimination and Adjusting entries
c.Assume Parent's Retained Earnings balance = ($655,000) and paid a $25,000 Dividend.
Advanced Financial Accounting
ISBN: 978-0132928939
7th edition
Authors: Thomas H. Beechy, V. Umashanker Trivedi, Kenneth E. MacAulay