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

On 1/1/16 Poncho acquired an 80% interest in Stroller for $560,000 when Stroller's equity consisted of $530,000 paid-in capital and $100,000 Retained Earnings.Any excess of purchase price over was attributed to goodwill. ? On January 1, 2021, Stroller had the following stockholders' equity: ? Common stock (\ 20 par) \ 180,000 Paid-in capital in excess of par 350,000 Retained earnings 220,000 Total stockholders' equity \ 750,000 On January 2, 2021, Company S sold 1,000 additional shares to non-controlling shareholders in a public offering for $50 per share.Stroller's net income for 2021 was 80,000.Poncho uses the simple equity method to record its investment in Stroller. ? Required: a.Prepare Poncho's journal entry to adjust its Investment in Stroller account on January 2, 2021.Assume that Poncho has $500,000 additional paid-in capital. b.Determine the carrying value of Poncho's Investment in Stroller account on December 31, 2021.

On January 1, 2016, 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, 2016, 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: ? ? 2016 2017 Net income \ 50,000 \ 80,000 Dividends 10,000 20,000 In November 2016, 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, 2016. ? For both 2016 and 2017, Prism Company has accounted for its investment in Sight Company using the simple equity method. ? During 2016, Sight Company sold goods to Prism Company for $40,000, of which $10,000 was on hand on December 31, 2016.During 2017, Sight sold goods to Prism for $60,000 of which $15,000 was on hand on December 31, 2017.Sight's gross profit on intercompany sales is 40%. ? Required: ? Complete the Figure 8-1 worksheet for consolidated financial statements for 2017. ? ? ?

On January 1, 2016, 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, 2018, Stephan Company had the following stockholders' equity: Common stock, \ 10 par \ 100,000 Other paid-in capital 200,000 Retained earnings 300,000 On January 2, 2018, 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)

Company P purchased an 80% interest in the Company S on January 1, 2016, for $600,000.Any excess of cost is attributed to the Company's building with a 20-year life.The equity balances of Company S are as follows: ? January 1,2016 December 31,2019 Common stock, \ 10 par \ 100,000 \ 140,000 Other paid-in capital 200,000 280,000 Retained earnings 250,000 450,000 The only change in paid-in capital is a result of a 40% stock dividend paid in 2018.The cost to simple equity conversion to bring the investment account to its December 31, 2019, balance is ____.

Pepper Company owns 60,000 of Salt Company's 100,000 outstanding shares.This year, Salt purchased 20,000 of its outstanding shares from the NCI for $70,000.Pepper's interest after the treasury stock purchase is:

On January 1, 2016, Parent Company purchased 85% of the common stock, 8,500 shares, of Subsidiary Company for $317,500.On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $50,000, $100,000, and $200,000 respectively.Any excess of cost over book value is due to goodwill. ? On January 1, 2017, Subsidiary purchased, from its non-controlling shareholders, 1,000 shares of its common stock, 10% of the stock outstanding on that date.The price paid was $44,000.The trial balances of Parent and Sub as of 12/31/17 are given below: ? ? Required (round all amounts to whole dollars; round percentages to one decimal: XX.X%) a.Prepare the D&D schedule for the 1/1/16 acquisition. b.Prepare a schedule to determine the change in Parent's interest in Sub. c.Prepare the journal entry the parent needed to adjust its interest in Sub.(Note that it has already been included in the parent's trial balance.) d.Prepare, in journal form, all elimination entries necessary for the 12/31/17 consolidation worksheet.?

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?

Apple Inc.purchased a 70% interest in the Banana Company for $490,000 on January 1, 2018, when Banana Company had the following stockholders' equity: Common stock, \ 10 par \ 100,000 Paid-in capital in excess of par 250,000 Retained earnings 150,000 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 ____.

Pepper Company owned 60,000 of Salt Company's 100,000 outstanding shares.On January 2, 2018, Salt purchased 20,000 of its outstanding shares from the NCI for $70,000.Pepper purchased its shares on January 1, 2016, at which time the fair value of Salt exceeded its book value by $50,000.This difference was due to machinery that was undervalued and had a remaining life of 5 years.On December 31, 2017, Salt Company had the following stockholders' equity: ? Common stock, \ 1 par \ 100,000 Paid-in capital in excess of par 50,000 Retained earnings 270,000 Assuming Pepper uses the equity method to account for its investment in Salt, the adjustment to the Pepper's books would include:

Consolidated statements for X, Y, and Z are proper if

Parrot, Inc.purchased a 60% interest in Swallow Company on January 1, 2016, for $204,000.Any excess of cost was attributable to goodwill. ? On January 1, 2019, Swallow purchased 2,400 of its shares held by non-controlling stockholders for $50 per share.Swallow equity balances on various dates were as follows: ? ? January 1, December 31, January 1, Capital stock (\ 10 par ) \ 120,000 \ 120,000 \ 120,000 Paid-in capital in excess of par 60,000 60,000 60,000 Retained earnings 160,000 240,000 340,000 Treasury stock (at cost) (120,000) (2,400\times\ 50) 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, 2020: ? ?

When a subsidiary issues a stock dividend, an amount equal to the fair value of the shares should be removed from retained earnings and transferred to paid-in-capital in excess of par, if the distribution:

Pepper Company owned 60,000 of Salt Company's 100,000 outstanding shares.On January 2, 2018, Salt purchased 20,000 of its outstanding shares from the NCI for $70,000.Pepper purchased its shares on January 1, 2016, at which time the fair value of Salt exceeded its book value by $50,000.This difference was due to machinery that was undervalued and had a remaining life of 5 years.On December 31, 2017, Salt Company had the following stockholders' equity: Common stock, \ 1 par \ 100,000 Paid-in capital in excess of par 50,000 Retained earnings 270,000 The amount of the adjustment to Pepper's equity would be a:

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

a.What would be Company P's investment balance given the following information: Company P's ownership interest of Company S is 90%.The original cost of the investment is $500,000.The beginning retained earnings of Company S in prior to a dividend was $100,000 and two years later retained earnings of Company S was $280,000. b.Record the journal entry to record equity income under the simple equity method at the end of two years for Company P, assuming the second year's income for Company S was $100,000 and no dividend declarations were made.

On January 1, 2016, 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, 2016, 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: ? ? 2016 2017 Netincome \ 50,000 \ 90,000 Dividends 10,000 30,000 On January 1, 2017, Subsidiary Company sold an additional 2,500 shares of common stock to non-controlling shareholders for $50 per share. ? In the last quarter of 2017, 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 1/1/16 ? ? b.Parent's journal entry to record change in ownership interest due to Sub's issuance of additional shares on 1/1/17.Support with schedule of Parent's ownership interest before and after the 1/1/17 issuance.? ? c.All necessary elimination entries necessary to prepare the consolidating worksheet on 12/31/17 ?

Company P had 300,000 shares of common stock outstanding.It owned 80% of the outstanding common stock of S.S owned 20,000 shares of P common stock.In the consolidated balance sheet, Company P's outstanding common stock may be shown as

When a parent purchases a portion of the newly issued stock of its subsidiary and the ownership interest increases,

Plum Inc.acquired 90% of the capital stock of Sterling Co.on 1/1/16 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 1/1/16 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 non-controlling interest in consolidated net income is

On January 1, 2016, 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, 2018, Scott Company had the following stockholders' equity: Common stock, \ 10 par \ 100,000 Other paid-in capital 200,000 Retained earnings 350,000 On January 2, 2018, Scott Company sold 2,500 additional shares of stock for $60 each in a private offering to non-controlling shareholders.As a result of this sale, which of the following changes would appear in the 2018 consolidated statements?