Parent Corporation paid $400,000 cash for 90% of Subsidiary Corporation\'s commo

Question

Parent Corporation paid $400,000 cash for 90% of Subsidiary Corporation's common stock on January 1, 2006,

when Subsidiary had $300,000 capital stock and $100,000 retained earnings. Th book value of Subsidiary's
assets and liabilities were equal to fair values. During 2006, Subsidiary reported net income of $20,000 and
declared $10,000 in dividends on December 31. Balance sheets for Parent and Subsidiary at December 31, 2006,
are as follows (in thousands):
Parent Subsidiary
Assets
Cash $                              42 $                            20
Receivable - net 50 130

Inventories 400 50
Land 150 200
Equipment - net 600 100
Investment in Subsidiary 409
$                          1,651 $                          500
Liabilities and Equity
Accounts payable 410 80
Dividends payable 60 10
Capital stock 1000 300
Retained earnings 181 110
$                          1,651 $                          500
Required:
1. Prepare consolidated balance sheet working papers for Parent Corporation and Subsidiary for December 31,2006.

Explanation / Answer

Elimination journal at year end:

Consolidated balance sheet

Fair value of consideration given: Ref Particulars Amount Cash           4,00,000 a Total consideration           4,00,000 b Stake acquired 90% c=a/b Fair value of subsidiary     4,44,444.44 d=100%-b Minority interest 10% e=c*d Fair value of minority interest        44,444.44

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