Question
Parent Company purchased an 80% interest in Subsidiary Company for $600,000 on January 1, 20XI, when Subsidiary Co had the following balanc sheet. Assets Cash
Parent Company purchased an 80% interest in Subsidiary Company for $600,000 on January 1, 20XI, when Subsidiary Co had the following balanc sheet.
Assets
Cash $ 75,000
Inventory 120,000
Land 90,00
Building,net 270,000
Equipment,net 80,000
Total Assets $635,000
Liabilites and Equity
Current liabilites $100,000
Common Stock,$5 par 50,000
Paid-in capital in excess par 160,000
Retained earnings 325,000
Total Liabilites an Eqyuity $635,000
The fair values and book values of the identifiable net assets are the same except for the following. Land is understated by $50,000. The building has a fair value of $250,000 and a 20-year remaining life. The equipment has a fair value of $90,000 and a remaining life of 5 years. Any remaining excess is attributed yo good will.
From Jan.1 through Dec. 31, 20XI, Sudsidiary Co. had net income of $150,000 and paid $20,000 in dividends.
Assume that Parent Co. uses "the simple equity method"to record its investments in Sudsidiary Co.
C) Compute the balance which should appear in Investment in Subsidiary Co. and in Subsidiary Income on Dec. 31,20XI PRIOR TO CONSOLIDATION
Hint: You ,must use "T" accounts to post your entries.
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