On 1/1/16 Parent Co paid $7,000,000 for a 30% interest in Son Co. Son\'s total a

Question

On 1/1/16 Parent Co paid $7,000,000 for a 30% interest in Son Co. Son's total assets had a fair value of $22,000,000 and a book value of $20,000,000. The difference between fair and book value is from depreciable assets with a 10 year life. During the year, Son reported net income of $5,000,000 and paid total dividends of $1,000,000. 19. Record parent's investment on 1/1/16 20. If applicable, record the impact on Parent Co of Son's net income and dividends. Record with journal entries. 21. What did Parent pay for Goodwill? 22. What is the value of Parent's investment at 12/31/16?

Explanation / Answer

30% 100% 01-01-2016 7000000 23333333 Sons fair value 22000000 Book value 20000000 Net income - Sons 5000000 Dividend 1000000 20% Parents investmnet - 1-1-6 Investment in Sons shares 7000000 To Bank 7000000 Parents co. income from Sons income and dividends Profit share receivable Dr 1500000 ( 5000000 * 30% Bank Dr 300000 ( 1000000 x 30%) TO Dividend 300000 To Share of profit received from 1500000 Goodwill calculation : - Fair value of Sons 22000000 30% share 6600000 Amt paid by PARENTS 7000000 Excess paid is goodwill 400000 Value of investment on 31-3-16 Acquisition cost 7000000 Add Profit share 1500000 value of investment 8500000

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