On $01/01/2020,$ Big Co$.$ purchase $80\%$ of Small Co$.$ common stock for $$160,000$ cash. Assume that the Big COMPANY AND CONSOLIDATED SUBSIDIARY

Consolidation Worksheet

December $31,2021$

purchase price equals the net assets fair value of Small Co$.$ and the book values of all the assets and liabilities of

Small Co$.$ equal to their fair value. On $01/01/2020$ right after the acquisition, Big paid $$103,387$ to buy bonds

originally issued by Small from open market. The purchase price implies an effective interest rate of $7\%$ for the

bonds. Small issued the bonds with a $5-$year life, a face value of $$100,000$ and coupon rate of $8\%$ on $01/01/2019$

for $$88,913,$ which implied an effective interest rate of $11\%.$ The coupon was paid at the end of each year.

Using the above information, please use the acquisition method to consolidate the books of Big Co$.$ and Small

Co$.$ on $\frac{12}{31}\frac{?}{2021},$ assuming that Big records its investment in subsidiary with the Sophisticated equity

method.

Big's Amortization table for the bonds

Small's Amortization table for the bonds

Journal entries made by Big Co$.$ in $2021$ to ajdust its investment accounts under enquity method

Investment in Small

Equity in subisidiary earnings

Cash

Investment in Small

Equity in subisidiary earnings

Investment in Small

Investment in Small

Equity in subisidiary earnings

Investment in Small

Beginning balance for $2021$

Ending balance for $2021$

Big's share in Small's current year net income

Cash dividend received from Byant

Gain$/$loss on retirement of bonds in current year

Difference between bond interest income & expense in current

year

Equity in Subsidiary earnings

Small's earnings in $2021$

Gain$/$loss on retirement of bonds in $2021$

Difference between bond interest income&expense