Question Two: (8 marks) (B1, C1)

Part A: (4 marks)

During 2019, X company (the 90%-owned subsidiary) sold merchandize to Y Company (the subsidiary) at selling price $80,000, the cost of goods sold $60,000. During 2020, Y Company sold the merchandise at $100,000. Net income for Y Company for 2019 and 2020 respectively: $120,000; $140,000. There is no dividend.

Instructions:

1. Calculate the Parent company from the subsidiarys net income? (1 marks)
2. Calculate the Minority interest from the subsidiarys net income? (1 marks)
3. Prepare the working paper in Journal entries format for 2015 and 2016? (2 marks)

Part B: (4 marks)

Ali and Fatima are partners whose capital balances are $400,000 and $300,000 and who share profits 3:2. Due to a shortage of cash, Ali and Fatima agree to admit Ahmed to the firm.

Instructions:

Prepare the journal entries required to record Ahmeds admission under each of the following independent assumptions:

1. Ahmed invests $200,000 for a 1/4 interest. The total firm capital is to be $900,000.
2. Ahmed invests $300,000 for a 1/4 interest. Goodwill is to be recorded.
3. Ahmed purchases a 1/4 interest in the firm, with 1/4 of the capital of each old partner transferred to the account of the new partner. Ahmed pays the partners cash of $250,000, which they divide between themselves.