On January 1, 2016, 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:
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$$\begin{array} { l r r }
& 2016 & 2017 \
\text { Netincome } & \$ 50,000 & \$ 90,000 \
\text { Dividends } & 10,000 & 20,000
\end{array}$$ 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 $5,000 more than cost.The inventory was sold in 2016.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.
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Prepare all necessary elimination entries for the consolidating worksheet of December 31, 2017.Assume Parent uses the simple equity method of accounting for its investment in Subsidiary.

Question

On January 1, 2016, 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:
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 $$\begin{array} { l r r } 
& 2016 & 2017 \
\text { Netincome } & \$ 50,000 & \$ 90,000 \
\text { Dividends } & 10,000 & 20,000
\end{array}$$ 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 $5,000 more than cost.The inventory was sold in 2016.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.
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Prepare all necessary elimination entries for the consolidating worksheet of December 31, 2017.Assume Parent uses the simple equity method of accounting for its investment in Subsidiary.

Quizplus · Accepted Answer

The Answer of On January 1, 2016, 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:
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?
 $$\begin{array} { l r r } 
& 2016 & 2017 \
\text { Netincome } & \$ 50,000 & \$ 90,000 \
\text { Dividends } & 10,000 & 20,000
\end{array}$$ 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 $5,000 more than cost.The inventory was sold in 2016.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.
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Prepare all necessary elimination entries for the consolidating worksheet of December 31, 2017.Assume Parent uses the simple equity method of accounting for its investment in Subsidiary.

On January 1, 2016, Parent Company Purchased 80% of the Common