On January 1, 2016, Parent Company purchased 80% of the common stock of Subsidiary Company for $402,000.On this date Subsidiary had total owners' equity of $440,000.Any excess of cost over book value is due to goodwill.Parent accounts for its investment in Subsidiary using the simple equity method.
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On January 1, 2016, Parent held merchandise acquired from Subsidiary for $50,000.During 2016, Subsidiary sold merchandise to Parent for $120,000, of which Parent holds $30,000 on December 31, 2016.Subsidiary's gross profit on sales is 40%.On December 31, 2016, Parent still owes Subsidiary $5,000 for merchandise.
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On December 31, 2016, Parent sold $100,000 par value of 11%, 10-year bonds for $106,232, which resulted in an effective interest rate of 10%.The bonds pay interest semi-annually on June 30 and December 31.Parent uses the effective-interest method of amortization for the premium.
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An amortization table for 2017 and 2016 is presented below:
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$\begin{array}{rlllll}
&\text { Cash } & \text { Interest } & \text { Premium } & \text { Premium } & \text { Debt } \
&\text { Interest } & \text { Expense } & \text { Amortization } & \text { Balance } & \text { Carrying }\
&&&&&\text { Value }\
12 / 31 / 16 & & & & 6,232 & 106,232 \
6 / 30 / 17 & 5,500 & 5,312 & (188) & 6,044 & 106,044 \
12 / 31 / 17 & 5,500 & 5,302 & (198) & 5,846 & 105,846 \
6 / 30 / 16 & 5,500 & 5,292 & (208) & 5,638 & 105,638 \
12 / 31 / 16 & 5,500 & 5,282 & (218) & 5,420 & 105,420
\end{array}$ On December 31, 2017, Subsidiary repurchased $50,000 par value of the bonds, paying a price equal to par.The bonds are still held on December 31, 2016.
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On December 31, 2016, Parent sold equipment with a cost of $50,000 and accumulated depreciation of $30,000 to Subsidiary for $40,000.Subsidiary will use the equipment beginning in 2019.
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Required:
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Complete the Figure 5-7 worksheet for consolidated financial statements for the year ended December 31, 2016.Round all computations to the nearest dollar.
?

Question

On January 1, 2016, Parent Company purchased 80% of the common stock of Subsidiary Company for $402,000.On this date Subsidiary had total owners' equity of $440,000.Any excess of cost over book value is due to goodwill.Parent accounts for its investment in Subsidiary using the simple equity method.
?
On January 1, 2016, Parent held merchandise acquired from Subsidiary for $50,000.During 2016, Subsidiary sold merchandise to Parent for $120,000, of which Parent holds $30,000 on December 31, 2016.Subsidiary's gross profit on sales is 40%.On December 31, 2016, Parent still owes Subsidiary $5,000 for merchandise.
?
On December 31, 2016, Parent sold $100,000 par value of 11%, 10-year bonds for $106,232, which resulted in an effective interest rate of 10%.The bonds pay interest semi-annually on June 30 and December 31.Parent uses the effective-interest method of amortization for the premium.
?
An amortization table for 2017 and 2016 is presented below:
?
?
 $\begin{array}{rlllll}
&\text { Cash } & \text { Interest } & \text { Premium } & \text { Premium } & \text { Debt } \
&\text { Interest } & \text { Expense } & \text { Amortization } & \text { Balance } & \text { Carrying }\
&&&&&\text { Value }\
12 / 31 / 16 & & & & 6,232 & 106,232 \
6 / 30 / 17 & 5,500 & 5,312 & (188) & 6,044 & 106,044 \
12 / 31 / 17 & 5,500 & 5,302 & (198) & 5,846 & 105,846 \
6 / 30 / 16 & 5,500 & 5,292 & (208) & 5,638 & 105,638 \
12 / 31 / 16 & 5,500 & 5,282 & (218) & 5,420 & 105,420
\end{array}$  On December 31, 2017, Subsidiary repurchased $50,000 par value of the bonds, paying a price equal to par.The bonds are still held on December 31, 2016.
?
On December 31, 2016, Parent sold equipment with a cost of $50,000 and accumulated depreciation of $30,000 to Subsidiary for $40,000.Subsidiary will use the equipment beginning in 2019.
?
Required:
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Complete the Figure 5-7 worksheet for consolidated financial statements for the year ended December 31, 2016.Round all computations to the nearest dollar.
?

Quizplus · Accepted Answer

The Answer of On January 1, 2016, Parent Company purchased 80% of the common stock of Subsidiary Company for $402,000.On this date Subsidiary had total owners' equity of $440,000.Any excess of cost over book value is due to goodwill.Parent accounts for its investment in Subsidiary using the simple equity method.
?
On January 1, 2016, Parent held merchandise acquired from Subsidiary for $50,000.During 2016, Subsidiary sold merchandise to Parent for $120,000, of which Parent holds $30,000 on December 31, 2016.Subsidiary's gross profit on sales is 40%.On December 31, 2016, Parent still owes Subsidiary $5,000 for merchandise.
?
On December 31, 2016, Parent sold $100,000 par value of 11%, 10-year bonds for $106,232, which resulted in an effective interest rate of 10%.The bonds pay interest semi-annually on June 30 and December 31.Parent uses the effective-interest method of amortization for the premium.
?
An amortization table for 2017 and 2016 is presented below:
?
?
 $\begin{array}{rlllll}
&\text { Cash } & \text { Interest } & \text { Premium } & \text { Premium } & \text { Debt } \
&\text { Interest } & \text { Expense } & \text { Amortization } & \text { Balance } & \text { Carrying }\
&&&&&\text { Value }\
12 / 31 / 16 & & & & 6,232 & 106,232 \
6 / 30 / 17 & 5,500 & 5,312 & (188) & 6,044 & 106,044 \
12 / 31 / 17 & 5,500 & 5,302 & (198) & 5,846 & 105,846 \
6 / 30 / 16 & 5,500 & 5,292 & (208) & 5,638 & 105,638 \
12 / 31 / 16 & 5,500 & 5,282 & (218) & 5,420 & 105,420
\end{array}$  On December 31, 2017, Subsidiary repurchased $50,000 par value of the bonds, paying a price equal to par.The bonds are still held on December 31, 2016.
?
On December 31, 2016, Parent sold equipment with a cost of $50,000 and accumulated depreciation of $30,000 to Subsidiary for $40,000.Subsidiary will use the equipment beginning in 2019.
?
Required:
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Complete the Figure 5-7 worksheet for consolidated financial statements for the year ended December 31, 2016.Round all computations to the nearest dollar.
?

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