QUESTION 2 Not complete Marked out of 6300 Rag question Cons

QUESTION 2 Not complete Marked out of 63.00 Rag question Consolidation at the end of the first year subsequent to date of acquisition-Cost method (purchase price equals book value) Assume that the parent company acquires its subsidiary on January 1, 2016, by exchanging 31,500 shares of its $1 par value Common Stock, with a market value on the acquisition date of $48 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. Following are financial statements of the parent and its subsidiary for the year ended December 31, 2016. Parent Subsidiary Parent Subsidiary Balance sheet Income statement Sales Cost of goods sold Gross proft Equity income Operating expenses Net income $3,330,000 $1,890,000 Assets 2,331,000) (1,134,000) Cash $789,660 $486,990 426,240 438,480 646,020 563,220 999,000 756,000 Accounts receivable 39,690 (632,700) (491400) Equity investment $405,990 $264,600 Inventory 1,512,000 Property, plant & equipment 2,441,556 1,294,020 $5,815,476 $2,782,710 Statement of retained earnings BOY retained earning:s Net income Dividends 2,116,800 976,500 Liabilities and stockholders\' equity $243,756 180, 180 289,710 235,620 630,000 466,200 126,000 2,419,200 409,500 2,396,610 ,201,410 $5,815,476 $2,782,710 405,990 264,600 Accounts payable (126,180) (39,690) Accrued liabilities $2,396,610 $1,201,410 Ending retained earnings Long.term liabilities Common stock APIC Retained earnings

Solution

1. Journal Entry to record the acquisition of the subsidiary Equity investment     1,512,000       Common Stock          31,500       Addittional Paid in Capital    1,480,500 2. Consolidation entries for the year ended December 31, 2016 ADJ. No entry C. Equity Income           39,690    Dividend          39,690 (To eliminate the changes in parent\'s equity income and subsidiary\'s dividend) E. Common Stock         126,000 APIC         409,500 Retained Earning         976,500        Equity Investment    1,512,000 (To eliminate sudsidiary\'s common stock, APIC, retained earnings and parent\'s investment on the date of acquisition) 3. Consolidation Spreadsheet for the year ended December 31, 2016 Consolidation worksheet Parent Subsidiary Debit Credit Consolidated Income Statement Sales     3,330,000     1,890,000         5,220,000 Cost of Goods Sold (2,331,000) (1,134,000)      (3,465,000) Gross Profit         999,000         756,000         1,755,000 Equity Income           39,690          39,690                        -   Operating expenses       (632,700)       (491,400)      (1,124,100) Net income         405,990         264,600            630,900 Statement of retained earnings BOY retained earnings     2,116,800         976,500       976,500         2,116,800 Net Income         405,990         264,600            630,900 Dividends       (126,180)         (39,690)          39,690          (126,180) Ending retained earnings     2,396,610     1,201,410         2,621,520 Balance Sheet Assets Cash         789,660         486,990         1,276,650 Accounts receivable         426,240         438,480            864,720 Inventory         646,020         563,220         1,209,240 Equity Investment     1,512,000    1,512,000                        -   PPE,net     2,441,556     1,294,020         3,735,576     5,815,476     2,782,710         7,086,186 Liabilities and Equity                        -   Accounts payable         243,756         180,180            423,936 Accured liabilities         289,710         235,620            525,330 Long-term Liabilities         630,000            630,000 Common Stock         466,200         126,000       126,000            466,200 APIC     2,419,200         409,500       409,500         2,419,200 Retained Earnings     2,396,610     1,201,410         2,621,520     5,815,476     2,782,710    1,551,690    1,551,690         7,086,186