Parent Company purchased 100% of Son Inc. on January 1, 20X2 for $420,000. Son reported earnings of $82,000 and declared dividends of $4,000 during 20X2.

This is a 4 Part Question

1.

Based on the preceding information and assuming Parent uses the cost method to account for its investment in Son, what is the balance in Parent's Investment in Son account on December 31, 20X2, prior to consolidation?

$416,000

$420,000

$424,000

$498,000

2.

Based on the preceding information and assuming Parent uses the equity method to account for its investment in Son, what is the balance in Parent's Investment in Son account on December 31, 20X2, prior to consolidation?

$416,000

$420,000

$424,000

$498,000

3.

What portion of the balances of subsidiary stockholders' equity accounts are eliminated in preparing the consolidated balance sheet?

Common stock

Additional paid-in capital

Retained Earnings

All of the balances are eliminated

4.

The consolidation process consists of all the following except:

Adding together the financial statements of two or more legally separate companies.

Eliminating intercompany transactions and holdings.

Closing the subsidiary's earnings into the parent's retained earnings.

Combining the accounts of separate companies, creating a single set of financial statements.

4 Answers