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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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