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FINANCIAL ACCOUNTING
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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Consolidation at the end of the first year subsequent to date of acquisition-Cost method (purchase price equals book value) Assume the parent company acquires its subsidiary on January 1, 2019, by exchanging 20,000 shares of its $1 par value Common Stock, with a market value on the acquisition date of $50 per share, for all of the outstanding voting shares of the acquiree. You have been charged with preparing the consolidation of these two companies at the end of the first year. On the acquisition date, all of the subsidiary's assets and liabilities had fair values equaling their book values. The parent uses the cost method of pre-consolidation Equity investment bookkeeping. Following are financial statements of the parent and its subsidiary for the year ended December 31, 2019. Parent Subsidiary Parent Subsidiary Income statement Sales Cost of goods sold Gross profit Investment income Operating expenses Net income Statement of retained earnings BOY retained earnings Net income Dividends Ending retained earnings Description Common stock $3,400,000 $1,600,000 Assets (1,560,000) (900,000) Cash 1,840,000 700,000 Accounts receivable 60,000 Inventory (1,300,000) (500.000) Equity investment $600,000 $200,000 Property, plant & equipment, net 900,000 600,000 (250,000) $1,250,000 a. Prepare the journal entry to record the acquisition of the subsidiary. b. Prepare the consolidation entries for the year ended December 31, 2019. c. Prepare the consolidated spreadsheet for the year ended December 31, 2019. Acquisition entry Consolidation entries Consolidation spreadsheet General Journal Debit + Balance sheet 640,000 Liabilities and stockholders' equity 200,000 Accounts payable (60,000) Accrued liabilities $780,000 Long-term liabilities Common stock APIC Retained earnings Credit $350,000 $200,000 550,000 500,000 700,000 660,000 1,000,000 1,200,000 900,000 $3,800,000 $2,260,000 $200,000 650,000 $120,000 300,000 700,000 600,000 160,000 1,100,000 200,000 1,250,000 780,000 $3,800,000 $2,260,000
Transcribed Image Text:Consolidation at the end of the first year subsequent to date of acquisition-Cost method (purchase price equals book value) Assume the parent company acquires its subsidiary on January 1, 2019, by exchanging 20,000 shares of its $1 par value Common Stock, with a market value on the acquisition date of $50 per share, for all of the outstanding voting shares of the acquiree. You have been charged with preparing the consolidation of these two companies at the end of the first year. On the acquisition date, all of the subsidiary's assets and liabilities had fair values equaling their book values. The parent uses the cost method of pre-consolidation Equity investment bookkeeping. Following are financial statements of the parent and its subsidiary for the year ended December 31, 2019. Parent Subsidiary Parent Subsidiary Income statement Sales Cost of goods sold Gross profit Investment income Operating expenses Net income Statement of retained earnings BOY retained earnings Net income Dividends Ending retained earnings Description Common stock $3,400,000 $1,600,000 Assets (1,560,000) (900,000) Cash 1,840,000 700,000 Accounts receivable 60,000 Inventory (1,300,000) (500.000) Equity investment $600,000 $200,000 Property, plant & equipment, net 900,000 600,000 (250,000) $1,250,000 a. Prepare the journal entry to record the acquisition of the subsidiary. b. Prepare the consolidation entries for the year ended December 31, 2019. c. Prepare the consolidated spreadsheet for the year ended December 31, 2019. Acquisition entry Consolidation entries Consolidation spreadsheet General Journal Debit + Balance sheet 640,000 Liabilities and stockholders' equity 200,000 Accounts payable (60,000) Accrued liabilities $780,000 Long-term liabilities Common stock APIC Retained earnings Credit $350,000 $200,000 550,000 500,000 700,000 660,000 1,000,000 1,200,000 900,000 $3,800,000 $2,260,000 $200,000 650,000 $120,000 300,000 700,000 600,000 160,000 1,100,000 200,000 1,250,000 780,000 $3,800,000 $2,260,000
Expert Solution
Notes

#Note

It has been assumed that only requirement A is required to answer.

The Additional paid in capital = 20000*$49

Common stock = Face value of shares = 20000*$1

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