Concept explainers
a
Introduction: Immediately after a business combination, the parent company records income and dividends from the subsidiary using the equity method, in addition, parents must also write off the portion of the differential of the excess acquisition price. Further, all the intercompany transactions must be eliminated before the preparation of consolidated financial statements.
The entries by P during 20X3 on its books for its investment in S using equity method,
b
Introduction: Immediately after a business combination, the parent company records income and dividends from the subsidiary using the equity method, in addition, parents must also write off the portion of the differential of the excess acquisition price. Further, all the intercompany transactions must be eliminated before the preparation of consolidated financial statements.
The consolidation entries needed at December 31, 20X3.
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Advanced Financial Accounting
- Sing Company, a 80% owned subsidiary of Paint Corp., reported net income of P1,500,000 and paid dividends totaling P500,000 during Year 1. Amortization of the excess fair values over book values of identifiable net assets on the date of acquisition amounted to P220,000. What is the amount of non-controlling interest in consolidated net income of Sing in Year 1?arrow_forwardParent Company acquires a subsidiary by issuing 100,000 common shares with a market value of $25 per share for all of the subsidiary's common stock. The subsidiary's assets and liabilities were recorded at fair values with the exception of equipment undervalued by $225,000. In addition, there were two unrecorded assets: a trademark valued at $175,000 and a customer list valued by the subsidiary at $60,000. The balance sheets of the parent and subsidiary immediately after the acquisition are presented below: Parent Subsidiary Cash $740,000 $420,000 Accounts Receivable 900,000 625,000 Inventory 440,000 750,000 Equity Investment 2,500,000 Property, plant and equipment (net) 3,190,000 1,205,000 $7,770,000 $3,000,000 Accounts payable $125,000 $145,000 Salaries payable 60,000 35,400 Long-Term Notes Payable 700,000 850,000 Common Stock 200,000 150,000 Additional paid-in capital 5,000,000…arrow_forwardOn January 1, 20x6, Parent Corporation purchased 80% of Subsidiary Company's outstanding stock for P620,000. At that date, all of Subsidiary's assets and liabilities had market values approximately equal to their book values and no goodwill was included in the purchase price. The following information was available for 20x6: income from own operations of Parent, P150,000; operating loss of Subsidiary, P20,000. Dividends paid in 20x6 by Parent, P75,000; by Subsidiary to Parent, P12,000, On July 1, 20x6, there was a downstream sale of equipment at a gain of P25,000. The equipment is expected to have a remaining useful life of 10 years from the date of sale. Also, on January 1, 20x6, there was an upstream sale of furniture at a loss of P7,500. The furniture is expected to have a useful life of five years from the date of sale. Non-controlling interest is measured at fair value. How much is the consolidated net income attributable to the parent shareholders' equity?arrow_forward
- On June 30, 20X1, Naeder Corporation purchased for cash at $10 per share all 100,000 shares of the outstanding common stock of the Tedd Company. The total fair value of all identifiable net assets of Tedd was $1,400,000. The only noncurrent asset is property with a fair value of $350,000. The consolidated balance sheet of Naeder and its wholly owned subsidiary on June 30, 20X1, should report a. a retained earnings balance that is inclusive of a gain of $400,000. b. goodwill of $400,000. c. a retained earnings balance that is inclusive of a gain of $350,000. d. a gain of $400,000arrow_forwardOn January 1, 20X4, Parent Company purchased 90% of the common stock of Subsidiary Company for $360,000. On this date, Subsidiary had common stock, other paid in capital, and retained earnings of $20,000, $130,000, and $200,000 respectively. Any excess of cost over book value is due to goodwill. Parent account for the Investment in Subsidiary using the simple equity method. On July 1, 20X4, Subsidiary sold $100,000 par value of 9%, ten-year bonds for $106,755, which resulted in an effective interest rate of 8%. The bonds pay interest semi-annually on January 1 and July 1 of each year. Subsidiary uses the effective-interest method of amortizing the premium. An amortization table for 20X4 and 20X5 is presented below: Date Cash Int Interest Exp Premium Amort Premium Bal Carrying Value 7/1/X4 6,755 106,755 12/31/X4 4,500 4,270 230 6,525 106,525 7/1/X5 4,500 4,261 239 6,286 106,286 12/31/X5 4,500 4,251 249 6,037…arrow_forwardMidStrata Corporation acquired 75% of the voting shares of Atoom Company on January 1, 20X1. The fair value ofthe non-controlling interest at acquisition was equal to its proportionate share of the fair value of the net assets ofAtoom. The full amount of the differential at acquisition was attributable to buildings and equipment, which had aremaining useful life of eight years. Financial statement data for the two companies and the consolidated entity atDecember 31, 20X6, are as follows:MIDSTRATA CORPORATION AND ATOOM COMPANYBalance Sheet DataDecember 31, 20X6Item MidStrata Corporation Atoom Company Consolidated EntityCash $ 67,000 $ 45,000 $ 112,000Account Receivable ? 55,000 145,000Inventory 125,000 90,000 211,000Buildings & Equipment 400,000 240,000 680,000Less: Accumulated Depreciation (180,000) (110,000) (?)Investment in Atoom Company ?Total Assets $ ? $320,000 $Accounts Payable $ 86,000 $ 20,000 $ 89,000Other Payables ? 8,000 ?Notes Payable 250,000 120,000 370,000Common Stock…arrow_forward
- On January 1, 20X8, Ramon Corporation acquired 80 percent of Tester Company's voting common stock for $300,000. At the time of the combination, Tester reported common stock outstanding of $200,000 and retained earnings of $110,000, and the fair value of the noncontrolling interest was $75,000. The book value of Tester's net assets approximated market value except for patents that had a market value of $40,000 more than their book value. The patents had a remaining economic life of five years at the date of the business combination. Tester reported net income of $40,000 and paid dividends of $10,000 during 20X8. What is the amount of Total Excess Depreciation that will be recorded for 20X8? Group of answer choices $6,000 $5,000 $8,000 $40,000arrow_forwardAt the beginning of current year, Cynosure Company purchased 30% of the ordinary shares of another entity for P3,500,000 when the net assets acquired amounted to P7,000,000 At acquisition date, the carrying amounts of the identifiable assets and liabilities of the investee were equal to their fair value, except for equipment for which the fair value was P1,500,000 greater than carrying amount and inventory whose fair value was P500,000 greater than cost. The equipment has a remaining life of 4 years and the inventory was all sold during the current year. The investee reported net income of P4,000,000 and paid P1,000,000 dividends during the current year. Required: 1. Prepare journal entries for the current year. 2. Compute the investment income for the current year.arrow_forwardThe Dali Group consisted of Dali Ltd, the parent, and its subsidiary, Gleeson Pty Ltd. On 31 December 20X6, Dali gaincd control of Drysdale by purchasing all its share capital for $250000. The purchase was based on the following fair values for Drysdale assets, which differ from their carrying amounts: Accounts receivable 21 400 Inventory 31000 Patents (not recorded by Drysdale) 15000 Equipment assets 170000 Financial statements of the three companics at the control date are shown in the workshecet below. At this date: • Gleeson has made a $400 payment to Dali, which has not yet reccived it. • Dali has shipped inventory goods to Gleeson invoiced at $900. Drysdale has not yet recived these goods or recorded them, but they have been included in the above fair value measure of the inventory. Drysdale applies the cost model to equipment. (e) Complete the worksheet below up to the sum column. (b) Prepare data adjustments in alternative general journal form with appropriate commentaries.…arrow_forward
- On January 1, 20x6, Parent Corporation purchased 80% of Subsidiary Company's outstanding stock for P620,000. At that date, all of Subsidiary's assets and liabilities had market valu. approximately equal to their book valu. and no goodwill was includ. in the purchase price. The following information was available for 20x6: income from own operations of Parent, P150,000, operating loss of Subsidiary, P20,000. Dividends paid in 20x6 by Parent, P75,000; by Subsidiary to Parent, P12,000.1 On July 1, 20x6, there was a downstream sale of equipment at a gain of P25,000. The equipment is expected to have a remaining useful life of 10 years from the date of sale. Also, on January 1, 20x6, there was an upstream sale of furniture at a loss of P7,500. The furniture is expected to have a useful life of five years from the date of sale. Non-controlling interest is measured at fair value. How much is the consolidated net income attributable to the parent shareholders' equity?arrow_forwardJam Ltd acquired all the equity in Cab Ltd on 31 December 20X4 for $370 000. At the control date, the equity of Cab was recorded as Paid-up capital of $250 000 and Retained profits of $31 000. The purchase price was based on the agreed fair values of Cab's identifiable assets and liabilities on that date. The following items were not at fair value in Cab's financial statements on the control date. Carrying amount ($) Fair value ($) Inventory 31 000 40 000 Property (Cost of $350 000, Accumulated depreciation of $100 000) 250 000 300 000 Other information: • Both Cab and the group entity account for its property by the cost model, and apply straight-line depreciation to the property. The property in Cab Ltd is expected to have a remaining life of 20 years from 31 December 20X4, and no residual value. • Cab sold goods to Jam for $10,000 during FY20X5, the cost of these inventories was 7,000. All these inventories were still on hand by Jam by 31 December 20X5, the year-end. Required:…arrow_forwardPab Corporation decided to establish Sollon Company as a wholly owned subsidiary by transferring some of its existing assets and liabilities to the new entity. In exchange, Sollon issued Pab 34,000 shares of $6 par value common stock. The following Information is provided on the assets and accounts payable transferred: Cash Inventory Land Buildings Equipment Accounts Payable Required: Cost $ 30,000 84,000 Book Value $ 30,000 Fair Value $ 30,000 84,000 84,000 71,000 71,000 101,000 175,000 141,000 242,000 98,000 71,000 114,000 59,000 59,000 59,000 a. Prepare the journal entry that Pab recorded for the transfer of assets and accounts payable to Sollon b. Prepare the journal entry that Sollon recorded for the receipt of assets and accounts payable from Pab. Complete this question by entering your answers in the tabs below. Required A Required B Prepare the journal entry that Pab recorded for the transfer of assets and accounts payable to Sollon. Note: If no entry is required for a…arrow_forward
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