On January 1, 20X1, Parent Company Acquired 90% of the Common

Essay

On January 1, 20X1, Parent Company acquired 90% of the common stock of Subsidiary Company for $360,000. On this date, Subsidiary had total owners' equity of $270,000, including retained earnings of $100,000.
On January 1, 20X1, any excess of cost over book value is due to the undervaluation of land, building, and goodwill. Land is worth $10,000 more than cost. Building is worth $50,000 more than book value, has a remaining life of 10 years, and is depreciated using the straight-line method.
During 20X1 and 20X2, Parent accounted for its investment in Subsidiary using the simple equity method.
During 20X2, Subsidiary sold merchandise to Parent for $50,000, of which $10,000 is held by Parent on December 31, 20X2. Subsidiary's gross profit on sales is 40%. On December 31, 20X2, Parent still owes Subsidiary $7,000 for merchandise acquired in December.
On July 1, 20X0, Subsidiary sold $100,000 par value of 10%, 10-year bonds for $104,000. The bonds pay interest semiannually on January 1 and July 1. Straight-line amortization of premium is used. On January 1, 20X2, Parent repurchased one-half of the bonds at par.
On January 1, 20X2, Parent purchased equipment for $104,610 and immediately leased the equipment to Subsidiary on a 4-year lease. The minimum lease payments of $30,000 are to be made annually on January 1, beginning immediately, for a total of 4 payments. The implicit interest rate is 10%. The useful life of the equipment is 4 years. The lease has been capitalized by both companies. Subsidiary is depreciating the equipment using the straight-line method and assuming a salvage value of $4,610.
A partial lease amortization schedule, applicable to either company, is presented below:
Required:
Prepare a determination and distribution of excess schedule. Next, complete the Figure 7-14 worksheet for a consolidated balance sheet as of December 31, 20X2. Round all computations to the nearest dollar.