ADVANCED FINANCIAL ACCOUNTING IA
ADVANCED FINANCIAL ACCOUNTING IA
12th Edition
ISBN: 9781260545081
Author: Christensen
Publisher: MCG
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Chapter 9, Problem 9.9E

(a)

To determine

Introduction: Consolidation is the process of combining financial results of various subsidiaries with the financial results of parent company. It is used only when parent company holds more than 50% of share of subsidiary company.

The journal entries recorded by B company for its investment in C company.

(a)

Expert Solution
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Explanation of Solution

Journal entries recorded by B company for its investment in C company is as follows:

    DateParticularsDebit ($)Credit ($)
    January 1, 20X3Investment in C company's stock120,000 
     To cash 120,000
     (Recording entry for purchase of stock of C company by B company)  
        
    December 31, 20X3Cash9000 
     To Investment in C company's stock ($15000*60%) 9000
     (Recording entry for receiving dividend from C company)  
        
    December 31, 20X3Investment in C company's stock24,000 
     To Income from C company ($40,000*60%) 24,000
     (Recording entry for receiving income from C company on investment)  

(b)

To determine

Introduction: Consolidation is the process of combining financial results of various subsidiaries with the financial results of parent company. It is used only when parent company holds more than 50% of share of subsidiary company.

The journal entries recorded by A company for its investment in B company.

(b)

Expert Solution
Check Mark

Explanation of Solution

Journal entries recorded by A company for its investment in B company is as follows:

    DateParticularsDebit ($)Credit ($)
    January 1, 20X3Investment in B company's stock315,000 
     To cash 315,000
     (Recording entry for purchase of stock of B company by A company)  
        
    December 31, 20X3Cash45,000 
     To Investment in B company's stock ($50000*90%) 45,000
     (Recording entry for receiving dividend from B company)  
        
    December 31, 20X3Investment in B company's stock129,600 
     To Income from B company ($120,000+$24000) *90%) 129,600
     (Recording entry for receiving income from C company on investment)  

(c)

To determine

Introduction: Consolidation is the process of combining financial results of various subsidiaries with the financial results of parent company. It is used only when parent company holds more than 50% of share of subsidiary company.

The consolidated entries related to B company’s investment in C company and A company’s investment in B company.

(c)

Expert Solution
Check Mark

Explanation of Solution

Consolidated entries related to B company’s investment in C company is as follows:

    DateParticularsDebit ($)Credit ($)
    December 31, 20X3Common stock100,000 
     Additional capital60,000 
     Retained earnings40,000 
     Income from C company24,000 
     Non-controlling interest of C company16,000 
     To Dividend declared 15,000
     To Investment in C company 135,000
     Non-controlling interest in Net asset of C company 90,000
     (Consolidated entry of investment in C company by B company)  

Working Note:

    ParticularsNCI 40%B company 60%=Common Stock +Additional Paid-In Capital +Retained Earnings
    Original book value$80,000 $1,20,000 =$1,00,000 $60,000 $40,000
    + Net Income$16,000 $24,000 =  $40,000
    - Dividends($6,000.00)($9,000)=  ($15,000)
    Ending book value$90,000 $1,35,000 =$1,00,000 $60,000 $65,000

Consolidated journal entries related to A company’s investment in B company is as follows:

    DateParticularsDebit ($)Credit ($)
    December 31, 20X3Common stock150000 
     Additional capital60000 
     Retained earnings140000 
     Income from C company129600 
     Non-controlling interest of B company14400 
     To Dividend declared 50000
     To Investment in B company 399600
     Non-controlling interest in Net asset of B company 44400
     (Consolidated entry of investment in B company by A company)  

Working note:

    ParticularsNCI 10%A company 90%=Common Stock +Additional Paid-In Capital +Retained Earnings
    Original book value$35,000 $3,15,000 =$1,50,000 $60,000 $1,40,000
    + Net Income$14,400 $1,29,600 =  $1,44,000
    - Dividends($5,000.00)($45,000)=  ($50,000)
    Ending book value$44,400 $3,99,600 =$1,50,000 $60,000 $2,34,000

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