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 $400,000. 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: Assets $ 700,000 Accounts Payable $ 100,000 Bonds Payable 200,000 Common Stock 120,000 Retained Earnings 280,000 Total $ 700,000 Total $ 700,000 Round reported net income of $80,000 for 20X2 and paid dividends of $25,000. Required: a. Give the journal entries recorded by Trim Corporation during 20X2 on its books if Trim accounts for its investment in Round using the equity method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b. 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.)

Explanation / Answer

journal entry:

assets A/c Debit 700000

To account payable A/c Credit 100000

To Bond payable A/c Credit 200000

To Common stock holder A/c Credit 400000

Common stock holder A/c Debit 400000

To bank 400000

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