Parent Company acquired 100% of Subsidiary Company's voting stock on January 1, 2019, by issuing 10,000 shares of its $10 par value common stock having a fair value of $14 per share. As of that date, Subsidiary had stockholders' equity totaling $105,000. Land shown on Subsidiary's accounting records was undervalued by $10,000. Equipment with a five-year remaining live was undervalued by $5,000. An unrecorded secret formula developed by Subsidiary was appraised at $20,000 with an estimated life of 20 years. Parent has accounted for Subsidiary by the equity method. The separate financial statements for the two companies for the year ending December 31, 2023 are shown on the next page. There were no intra-entity payables on that date. Credit balances are indicated by parentheses. REQUIRED: (1) Show how the Subsidiary earnings of $66,000 was computed.

Parent Company acquired 100% of Subsidiary Company's voting stock on January 1, 2019, by issuing 10,000 shares of its $10 par value common stock having a fair value of $14 per share. As of that date, Subsidiary had stockholders' equity totaling $105,000. Land shown on Subsidiary's accounting records was undervalued by $10,000. Equipment with a five-year remaining live was undervalued by $5,000. An unrecorded secret formula developed by Subsidiary was appraised at $20,000 with an estimated life of 20 years. Parent has accounted for Subsidiary by the equity method. The separate financial statements for the two companies for the year ending December 31, 2023 are shown on the next page. There were no intra-entity payables on that date. Credit balances are indicated by parentheses. REQUIRED: (1) Show how the Subsidiary earnings of $66,000 was computed.

Name: Parent Company acquired 100% of Subsidiary Company's voting stock on
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Description: Parent Company acquired 100% of Subsidiary Company's voting stock on January 1, 2019, byissuing 10,000 shares of its $10 par value common stock having a fair value of $14 per share. Asof that date, Subsidiary had stockholders' equity totaling $105,0

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Financial Transaction Analysis

The transaction analysis is done with the help of the accounting equation. The basic accounting equation is alternatively known as the balance sheet equation is based on the double-entry system which says that for each transaction happening in a business, at least two accounts should be affected I.e. both the debit side and the credit side should be equal. The Accounting Equation is

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Parent Company acquired 100% of Subsidiary Company's voting stock on January 1, 2019, by
issuing 10,000 shares of its $10 par value common stock having a fair value of $14 per share. As
of that date, Subsidiary had stockholders' equity totaling $105,000. Land shown on Subsidiary's
accounting records was undervalued by $10,000. Equipment with a five-year remaining live was
undervalued by $5,000. An unrecorded secret formula developed by Subsidiary was appraised
at $20,000 with an estimated life of 20 years.
Parent has accounted for Subsidiary by the equity method.
The separate financial statements for the two companies for the year ending December 31,
2023 are shown on the next page.
There were no intra-entity payables on that date. Credit balances are indicated by parentheses.
REQUIRED:
(1) Show how the Subsidiary earnings of $66,000 was computed.

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