On January 1, 2016, Parent Company purchased 80% of the common stock of Subsidia
ID: 2599797 • Letter: O
Question
On January 1, 2016, Parent Company purchased 80% of the common stock of Subsidiary Company for $320,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $45,000, $125,000, and $195,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
Net Income Dividends
2016 $60,000 $15,000
2017 $80,000 $15,000
On January 1, 2016, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $7,000 more than cost. The inventory was sold in 2016. Building, which was worth $20,000 more than book value, has a remaining life of 10 years, and straight-line depreciation is used. Any remaining excess is goodwill.
Prepare all necessary elimination entries for the consolidating worksheet of December 31, 2016. Assume Parent uses the simple equity method of accounting for its investment in Subsidiary. What is the NCI share of consolidated income for the year – show computations?
Explanation / Answer
NON CONTROLLING INTEREST A/C
$
$
INVENTORY REVALUATION
1.4
SHARE CAPITAL
9
BUILDING REVALUATION
4
RETAINED EARNINGS
39
BALANCE C/D
55.6
R/E 2016
13
61
61
COST OF CONTROL A/C
$
$
CASH PAID
320
SHARE CAPITAL
36
INVENTORY REVALUATION
5.6
RETAINED EARNINGS
156
BUILDING REVALUATION
16
GOODWILL
149.6
BALANCE C/D
341.6
341.6
RETAINED EARNINGS S
1 JAN 2016
COST OF CONTROL
156
JAN 1
2016
BAL C/D
195
NCI
39
31 DEC
2016
RETAINED EARN P
52
31 DEC 2016
BAL C/D
60
NCI
13
BLDG REVALATION DEPRECIATION
2
INVENTORY REVALUATION
7
67
67
BUILDING
REVALUATION
20
COST OF CONTROL
16
NCI
4
REVALUATION
7
COST OF CONTROL
5.6
NCI
1.4
INENTORY
NON CONTROLLING INTEREST A/C
$
$
INVENTORY REVALUATION
1.4
SHARE CAPITAL
9
BUILDING REVALUATION
4
RETAINED EARNINGS
39
BALANCE C/D
55.6
R/E 2016
13
61
61
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