Trim Corporation acquired 100 percent of Round Corporation’s voting common stock

Question

Trim Corporation acquired 100 percent of Round Corporation’s voting common stock on January 1, 20X2, for $405,000. At that date, the book values and fair values of Round’s assets and liabilities were equal. Round reported the following summarized balance sheet data:

Round reported net income of $89,000 for 20X2 and paid dividends of $30,000.

Give the consolidation entries needed at December 31, 20X2, to prepare consolidated financial statements. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

     Assets $ 715,000   Accounts Payable $ 102,000   Bonds Payable 208,000   Common Stock 120,000   Retained Earnings 285,000   Total $ 715,000   Total $ 715,000

Explanation / Answer

Consolidation Entries for wholly owned subsidiaries a) Equity Method entries on Trim's Corp Books Debit Credit Investment in Round Corp 405000 TO Bank 405000 (record the intial Investment) Investment in Round Corp 89000 To Income from Round corp 89000 (record 100% income of Round Corp) Cash 30000 To Investment in Round Corp 30000 (Record 100% Dividend) B) Book value calculation Total Book Value = Common Stock + Retained Earning Original Book Value 405000 120000 285000 + Net Income 89000 89000 - Dividend -30000 -30000 Ending Book Value 464000 120000 344000 Basic Elimination Entry' Debit Credit Common Stock                          1,20,000 Retained Earning                          2,85,000 Income from Round Corp                              89,000 TO Dividend Declared                       30,000 To investment in round Corp                   4,64,000

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