question archive Assume that a Parent company acquires a 75% interest in its Subsidiary on January 1, 2015
Assume that a Parent company acquires a 75% interest in its Subsidiary on January 1, 2015
Subject:AccountingPrice: Bought3
Assume that a Parent company acquires a 75% interest in its Subsidiary on January 1, 2015. On the date of acquisition, the fair value of the 75 percent controlling interest was $600,000 and the fair value of the 25 percent non controlling interest was $200,000.
On January 1, 2015, the book value of net assets equaled $800,000 and the fair value of the identifiable net assets equaled the book value of identifiable net assets (i.e., there was no AAP or Goodwill).
On January 1, 2015, the retained earnings of the subsidiary was $150,000.
On December 31, 2016, the Subsidiary company issued $750,000 (face) 6 percent, five-year bonds to an unaffiliated company for $765,000. The bonds pay interest annually on December 31, and the bond premium is amortized using the straight line method.
This results in annual bond-payable premium amortization equal to $3,000 per year. The following schedule provides the bond-amortization schedule from the initial issuance date. Year Cash Payment Amortization of Premium Interest Expense Carrying Amount Dec. 31, 2016 $765,000 Dec. 31, 2017 $45,000 $3,000 $42,000 762,000 Dec. 31, 2018 45,000 3,000 42,000 759,000 Dec. 31, 2019 45,000 3,000 42,000 756,000 Dec. 31, 2020 45,000 3,000 42,000 753,000 Dec. 31, 2021 45,000 3,000 42,000 750,000 On December 31, 2018, the Parent paid $735,000 to purchase all of the outstanding Subsidiary company bonds. The bond discount is amortized using the straight-line method, which results in annual bond-investment discount amortization equal to $5,000 per year. The following schedule provides the bond-amortization schedule for the Parent’s bond investment. Year Cash Payment Amortization of Discount Interest Income Carrying Amount Dec. 31, 2018 $735,000 Dec. 31, 2019 $45,000 $5,000 $50,000 740,000 Dec. 31, 2020 45,000 5,000 50,000 745,000 Dec. 31, 2021 45,000 5,000 50,000 750,000 The parent uses the cost method of pre-consolidation investment bookkeeping. The Parent and the Subsidiary report the following financial statements for the year ended December 31, 2019: Parent Subsidiary Parent Subsidiary Income statement Balance sheet Sales $6,500,000 $800,000 Assets Cost of goods sold (4,500 Provide the consolidation entries and prepare a consolidation worksheet for the year ended December 31, 2019. Round answers to the nearest whole number. Debit 221,090 X Credit 0 221,090 x 0 0 27,000 x 9,073 X 0 30,000 x 6,073 X 0 Consolidation Journal Description [ADJ] Investment Use negative signs with your answers in the Consolidated column for: Cost of goods sold, all expenses (inc. Total expenses), Income attributable to NCI and Dividends. Consolidation Worksheet Parent Subsidiary Debit Credit Consolidated $ 10,950 x (7,905,000) X 3,045,000 (1,995,000) X $6,500,087,440 x [bond] 1,105,672 x [bond] 740.000 $ 19,660,448 x 1,842,000 X 2,400,000 X 1,163,965 x 0 Investment in Bond (net)rn
Required:
Provide the consolidation entries and prepare a consolidation worksheet for the year ended December 31, 2018.
