On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
Prepare the necessary date alignment entries for the consolidating worksheet for December 31, 20X1 and December 31, 20X2 assuming that Parent records its investment in Subsidiary using
a. the cost method
b. the simple equity methodIf date alignment entries are not required, give rationale.

Question

On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:  
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
Prepare the necessary date alignment entries for the consolidating worksheet for December 31, 20X1 and December 31, 20X2 assuming that Parent records its investment in Subsidiary using 
a. the cost method
b. the simple equity methodIf date alignment entries are not required, give rationale.

Quizplus · Accepted Answer

The Answer of On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:  
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
Prepare the necessary date alignment entries for the consolidating worksheet for December 31, 20X1 and December 31, 20X2 assuming that Parent records its investment in Subsidiary using 
a. the cost method
b. the simple equity methodIf date alignment entries are not required, give rationale.

On January 1, 20X1, Parent Company Purchased 80% of the Common