29 Jun Question 15. On January 1, 20X1, Parent Co
Question
15. On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $300,000. Any excess of cost over book value on this date is attributed to a patent, to be amortized over 10 years.
On this date, Subsidiary had total shareholders’ equity as follows:
8% Preferred Stock, $100 par………………………
$100,000
Common Stock, $10 par…………………………….
50,000
Other Paid-in Capital…………………………….
120,000
Retained Earnings………………………………..
180,000
Total…………………………………………..
$450,000
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The 8% preferred stock is cumulative, non-participating, and has a liquidating value of par plus dividends in arrears. There were no preferred dividends in arrears on January 1, 20X1.
During 20X1, Subsidiary had a net loss of $10,000 and paid no dividends. In 20X2, Subsidiary had net income of $100,000 and paid dividends, on preferred and common, totaling $40,000.
On January 1, 20X2, Parent purchased $50,000 par value of Subsidiary’s preferred stock for $52,000. At year end, the preferred is still held as an investment.
In 20X1 and 20X2, Parent has accounted for its investments in Subsidiary’s preferred and common using the simple equity method.
During 20X2, Subsidiary sold merchandise to Parent for $40,000, of which $15,000 is still held by Parent on December 31, 20X2. Subsidiary’s usual gross profit is 40%.
Required:
Complete the Figure 7-10 worksheet for consolidated financial statements for the year ended December 31, 20X2.
7-33
Chapter 7
7-34
Chapter 7
16. On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $380,000. Any excess of cost over book value on this date is due to goodwill.
On this date, Subsidiary had common shareholders’ equity as follows:
Common stock, $10
par…………………………….
$ 50,000
Other paid-in capital…………………………….
170,000
Retained earnings………………………………..
180,000
Also on the date of purchase, Subsidiary had outstanding $200,000 par value of 10% preferred stock that is cumulative and nonparticipating. The preferred stock has a liquidating value of par, plus dividends in arrears. There were no preferred dividends in arrears on January 1, 20X1.
During 20X1, Subsidiary had a net income of $30,000 and paid no dividends. In 20X2, Subsidiary had net income of $120,000 and paid dividends, on preferred and common, totaling $60,000.
In 20X1 and 20X2, Parent has accounted for its investment in Subsidiary using the cost method.
On July 1, 20X2, Parent purchased equipment for $70,000 and immediately sold it to Subsidiary for $100,000. Subsidiary will use and depreciate the equipment over 5 years, assuming straight-line depreciation with no salvage value.
Required:
Complete the Figure 7-11 worksheet for consolidated financial statements for the year ended December 31, 20X2.
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