Assignment Question(s):(10.0 Marks)

Assume X Corp creates a subsidiary, Y Corp, and invests $500,000 cash in exchange for all of the $1 par common stock (2,000 shares). (2.5 marks)

X Corporation created Y Corporation with a transfer of $1,000 cash.During Y Corp.s first year of operations, it generated a net loss of $50 and paid no dividends.During Y Corp.s second year of operations, it generated net income of $100 and paid cash dividends of $30.(2.5 marks)

X Corp.Acquired 100% of common stock of Y Corp.Paying $ 2 Million in return for 50 Thousand common stock with $ 1 par value. Y Corp. realized $100 Thousand net income and paid $30 Thousand cash dividends. (2.5 marks)

X Corp.Acquired 100% of common stock of Y Corp.X Corp. assumed acquisition expenses as follows (amounts in $)(2.5 marks)

What would journal entries X and Y make at the time of the investment?

Answer:

Required:

A. Pass journal entries in the books of X corp. in year 1 and year 2 using equity method.

B. What is the balance of investment account at the end of year 2 using equity method?

C. Pass journal entries in the books of X corp. in year 1 and year 2 using cost Method.

D. What is the balance of investment account at the end of year 2 using cost method?

Answer:

Required: pass basic elimination entries in consolidation work sheet.

Answer:

Legal fees50,000

Accounting fees30,000

Travel expenses10,000

Legal fees (stock issue)20,000

Accounting fees (stock)15,000

SEC filing fees (stock)10,000

Prior to the acquisition date, $90,000 have been paid and capitalized to a deferred charges account on the balance sheet. The remaining $45,000 has not been paid or accrued.

Required:

Prepare the journal entry to record the acquisition expenses.

Answer: