On January 1, 2020, Parent Company acquired 100% of the common stock of Subsidiary Company in a stock exchange.On this date Subsidiary had total owners' equity of $550,000 and book value approximated fair value.

During 2020 and 2021, Parent has accounted for its investment in Subsidiary using the simple equity method.

On January 1, 2021, Parent held merchandise acquired from Subsidiary for $75,000.During 2021, Subsidiary sold merchandise to Parent for $100,000, of which $25,000 is held by Parent on December 31, 2021.Subsidiary's usual gross profit on affiliated sales is 50%.

On December 31, 2020, Parent sold to Subsidiary some equipment with a cost of $75,000 and a book value of $30,000.The sales price was $40,000.Subsidiary is depreciating the equipment over a 5-year life, assuming no salvage value and using the straight-line method.

Parent and Subsidiary qualify as an affiliated group for tax purposes and thus will file a consolidated tax return.Assume a 30% corporate income tax rate.

Required:

Complete the Figure 6-10 worksheet for consolidated financial statements for the year ended December 31, 2021.

Question

On January 1, 2020, Parent Company acquired 100% of the common stock of Subsidiary Company in a stock exchange.On this date Subsidiary had total owners' equity of $550,000 and book value approximated fair value.
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During 2020 and 2021, Parent has accounted for its investment in Subsidiary using the simple equity method.
​
On January 1, 2021, Parent held merchandise acquired from Subsidiary for $75,000.During 2021, Subsidiary sold merchandise to Parent for $100,000, of which $25,000 is held by Parent on December 31, 2021.Subsidiary's usual gross profit on affiliated sales is 50%.
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On December 31, 2020, Parent sold to Subsidiary some equipment with a cost of $75,000 and a book value of $30,000.The sales price was $40,000.Subsidiary is depreciating the equipment over a 5-year life, assuming no salvage value and using the straight-line method.
​
Parent and Subsidiary qualify as an affiliated group for tax purposes and thus will file a consolidated tax return.Assume a 30% corporate income tax rate.
​
Required:
​
Complete the Figure 6-10 worksheet for consolidated financial statements for the year ended December 31, 2021.
​
​
  ​

Quizplus · Accepted Answer

The Answer of On January 1, 2020, Parent Company acquired 100% of the common stock of Subsidiary Company in a stock exchange.On this date Subsidiary had total owners' equity of $550,000 and book value approximated fair value.
​
During 2020 and 2021, Parent has accounted for its investment in Subsidiary using the simple equity method.
​
On January 1, 2021, Parent held merchandise acquired from Subsidiary for $75,000.During 2021, Subsidiary sold merchandise to Parent for $100,000, of which $25,000 is held by Parent on December 31, 2021.Subsidiary's usual gross profit on affiliated sales is 50%.
​
On December 31, 2020, Parent sold to Subsidiary some equipment with a cost of $75,000 and a book value of $30,000.The sales price was $40,000.Subsidiary is depreciating the equipment over a 5-year life, assuming no salvage value and using the straight-line method.
​
Parent and Subsidiary qualify as an affiliated group for tax purposes and thus will file a consolidated tax return.Assume a 30% corporate income tax rate.
​
Required:
​
Complete the Figure 6-10 worksheet for consolidated financial statements for the year ended December 31, 2021.
​
​
  ​

On January 1, 2020, Parent Company Acquired 100% of the Common