Parent Company acquired 90% of Son Inc. on January 31, 20X2 in exchange for cash
ID: 2458527 • Letter: P
Question
Parent Company acquired 90% of Son Inc. on January 31, 20X2 in exchange for cash. The book value of Son’s individual assets and liabilities approximated their acquisition-date fair values. On the date of acquisition, Son reported the following:
Cash $ 350,000 Current Liabilities $ 120,000
Inventory 100,000
Plant Assets (net) 320,000 Common Stock 100,000
Property 500,000 Retained Earnings 1,050,000
Total Asses $1,270,000 Total Liabilities & Equity $ 1,270,000
During the year Son Inc. reported $310,000 in net income and declared $15,000 in dividends. Parent Company reported $520,000 in net income and declared $25,000 in dividends. Parent accounts for their investment using the equity method.
1. What journal entry will Parent make on the date of acquisition to record the investment in Son Inc.?
2. If Parent were to prepare a consolidated balance sheet on the acquisition date (January 31, 20X2), what is the basic consolidation entry Parent would use in the consolidation worksheet?
3. What is Parent’s balance in “Investment in Son Inc.” prior to consolidation on December 31, 20X2?
4. What is the basic consolidation entry Parent would use in the consolidation worksheet on December 31, 20X2?
Explanation / Answer
Journal entry Parent make on the date of acquisition to record the investment in Son Inc.
The net worth of Son’s Inc. is $ 1150000. The parent acquires 90 % of it . So we assume that 90 % stock is held by parent for $ 1035000.
SR NO
DATE
DETAILS
DR
CR
1
XXXX
Investment in subsidiary A/c
$ 1035000
Cash A/c
$ 1035000
The firm acquire 90 % of Stock on fair market value
Journal entry Parent make to record equity income
SR NO
DATE
DETAILS
DR
CR
1
XXXX
Investment in subsidiary A/c
$ 279,000
Equity Income in Subsidiary A/c
$ $ 279,000
The firm accounts for 90 % of the Net Income of $ 310000 of subsidiary
The basic consolidation entry Parent would use in the consolidation worksheet
SR NO
DATE
DETAILS
DR
CR
1
XXXX
Common Stock -Sub A/c
$ 100,000
Retained Earnings - Sub A/c
$ 1050,000
Investment in Sub Stock A/c
$ 1035000
Non Controlling Interest A/c
$ 115000
The Son’s Inc is a subsidiary and no company can invest in itself
SR NO
DATE
DETAILS
DR
CR
1
XXXX
Investment in subsidiary A/c
$ 1035000
Cash A/c
$ 1035000
The firm acquire 90 % of Stock on fair market value
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.