Exam 8: Subsidiary Equity Transactions, Indirect Subsidiary Ownership, and Subsidiary Ownership of Parent Shares

Parrot, Inc. purchased a 60% interest in Swallow Company on January 1, 20X1, for $204,000. Any excess of cost was attributable to goodwill. On January 1, 20X4, Swallow purchased 2,400 of its shares held by noncontrolling stockholders for $50 per share. Swallow equity balances on various dates were as follows: Parrot maintains its investment at cost; Swallow recorded the purchase of its shares as treasury stock at cost. Required: Prepare the necessary determination and distribution of excess schedules and all Figure 8-7 worksheet eliminations and adjustments on the following partial worksheet prepared on December 31, 20X5:

When a parent purchases a portion of the newly issued stock of its subsidiary and the parent's percentage of ownership interest remains the same,

On January 1, 20X1, Paul, Inc. acquired a 90% interest in Stephan Company. The $45,000 excess of purchase price (parent's share only) was attributable to goodwill. On January 1, 20X3, Stephan Company had the following stockholders' equity: On January 2, 20X3, Stephan sold 2,000 additional shares in a private offering. Stephan issued the new shares for $70 per share; Paul, Inc. purchased 600 of the shares. As a result of this sale, there is a(n)

On January 1, 20X1, Paris Ltd. paid $600,000 for its 75% interest in the Scott Company when Scott had total equity of $550,000. Any excess of cost over book value was attributed to equipment with a 10-year life. On January 1, 20X3, Scott Company had the following stockholders' equity: On January 2, 20X3, Scott Company sold 2,500 additional shares of stock for $90 each in a private offering to noncontrolling shareholders. As a result of this sale, which of the following changes would appear in the 20X3 consolidated statements?

A owns 80% of B and 20% of C. B owns 32% of C, and C owns 10% of A. Which interest will be considered NCI in the consolidated balance sheet?

Two types of intercompany stock purchases significantly complicate the consolidation process. The first occurs when the subsidiary issues added shares of stock in a public issue and the parent buys a portion of the shares. The second occurs when the subsidiary purchases outstanding shares of the parent company. Required: a.Discuss the current theoretical consolidation procedure for situations in which the parent buys a portion of the newly issued subsidiary shares that is (1) equal to its existing ownership percentage, (2) greater than its existing ownership percentage, and (3) less than its existing ownership percentage. b.Discuss the most widely supported, current theoretical consolidation procedures used when the subsidiary purchases outstanding common stock shares of the parent.

Able Company owns an 80% interest in Barns Company and a 20% interest in Carns Company. Barns owns a 40% interest in Carns Company. The reported income of Carns is $20,000 for 20X4. Which of the following shows how it will be distributed?

Manke Company owns a 90% interest in Neske Company. Neske, in turn, owns a 10% interest in Manke. Neske has 10,000 common stock shares outstanding, and Manke has 20,000 common stock shares outstanding. How many shares would each firm show as outstanding in the consolidated balance sheet, under the treasury stock method?

When a subsidiary owns shares of the parent, the subsidiary's investment account

A parent company owns a 100% interest in a subsidiary. Recently, the subsidiary paid a 10% stock dividend. The dividend should be recorded on the books of the parent

On January 1, 20X1, Prism Company purchased 7,500 shares of the common stock of Sight Company for $495,000. On this date, Sight had 20,000 shares of $10 par common stock authorized, 10,000 shares issued and outstanding. Other paid-in capital and retained earnings were $200,000 and $300,000 respectively. On January 1, 20X1, any excess of cost over book value is due to a patent, to be amortized over 15 years. Sight's net income and dividends for two years were: In November 20X1, Sight Company declared a 10% stock dividend at a time when the market price of its common stock was $50 per share. The stock dividend was distributed on December 31, 20X1. For both 20X1 and 20X2, Prism Company has accounted for its investment in Sight Company using the simple equity method. During 20X1, Sight Company sold goods to Prism Company for $40,000, of which $10,000 was on hand on December 31, 20X1. During 20X2, Sight sold goods to Prism for $60,000 of which $15,000 was on hand on December 31, 20X2. Sight's gross profit on intercompany sales is 40%. Required: Complete the Figure 8-1 worksheet for consolidated financial statements for 20X2.

On January 1, 20X1, Parent Company purchased 8,000 shares of the common stock of Subsidiary Company for $350,000. On this date, Subsidiary had 20,000 shares of $5 par common stock authorized, 10,000 shares issued and outstanding. Other paid-in capital and retained earnings were $150,000 and $200,000 respectively. On January 1, 20X1, any excess of cost over book value is due to a patent, to be amortized over 15 years. Parent Company uses the simple equity method to account for its investment in Sub. Subsidiary's net income and dividends for two years were: On January 1, 20X2, Subsidiary Company sold an additional 2,500 shares of common stock to noncontrolling shareholders for $50 per share. In the last quarter of 20X2, Subsidiary Company sold goods to Parent Company for $40,000. Subsidiary's usual gross profit on intercompany sales is 40%. On December 31, $7,500 of these goods are still in Parent's ending inventory. Required: Prepare the following items a.Determination and distribution schedule effective 1/1/X1 b.Parent's journal entry to record change in ownership interest due to Sub's issuance of additional shares on 1/1/X2. Support with schedule of Parent's ownership interest before and after the 1/1/X2 issuance. c.All necessary elimination entries necessary to prepare the consolidating worksheet on 12/31/X2

When the parent purchases some newly issued shares of a subsidiary, any adjustments resulting from the subsidiary stock sales should be made

Apple Inc. purchased a 70% interest in the Banana Company for $490,000 on January 1, 20X3, when Banana Company had the following stockholders' equity: At the time of Apple's purchase, Banana Company was an 80% owner of the Carrot Company. Also on that date, Carrot Company has a machine that has a market value in excess of book value of $20,000. There is no difference between book and market value for any Banana Company assets. The goodwill that would result from this purchase is ____.

Plum Inc. acquired 90% of the capital stock of Sterling Co. on 1/1/X1 at a cost of $540,000. On this date Sterling had equipment (10-year life) carried at $200,000 under market and total equity amounting to $350,000. On 1/1/X1 Sterling acquired 5% (10,000 shares) of Plum's outstanding common stock for $3 per share. Internally generated net income was $50,000 for Plum and $40,000 for Sterling. The noncontrolling interest in consolidated net income is

Plum Inc. acquired 90% of the capital stock of Sterling Co. on 1/1/X1 at a cost of $540,000. On this date Sterling had equipment (10-year life) carried at $200,000 under market and total equity amounting to $350,000. On 1/1/X1 Sterling acquired 5% (10,000 shares) of Plum's outstanding common stock for $3 per share. Internally generated net income was $50,000 for Plum and $40,000 for Sterling. Consolidated net income for 20X2 is

On January 1, 20X1, Parent Company purchased 8,000 shares of the common stock of Subsidiary Company for $350,000. On this date, Subsidiary had 20,000 shares of $5 par common stock authorized, 10,000 shares issued and outstanding. Other paid-in capital and retained earnings were $150,000 and $200,000 respectively. On January 1, 20X1, any excess of cost over book value is due to a patent, to be amortized over 15 years. Parent Company uses the simple equity method to account for its investment in Sub. Subsidiary's net income and dividends for two years were: On January 1, 20X2, Subsidiary Company sold an additional 2,500 shares of common stock to noncontrolling shareholders for $50 per share. In the last quarter of 20X2, Subsidiary Company sold goods to Parent Company for $40,000. Subsidiary's usual gross profit on intercompany sales is 40%. On December 31, $7,500 of these goods are still in Parent's ending inventory. Required: Complete the Figure 8-6 worksheet for consolidated financial statements for 20X2.