On January 1, 20161, Parent Company Purchased 80% of the Common

Essay

On January 1, 20161, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000.On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively.Net income and dividends for 2 years for Subsidiary Company were as follows:
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$$\begin{array} { l r r } & 2016 & 2017 \\\text { Netincome } & \$ 50,000 & \$ 90,000 \\\text { Dividends } & 10,000 & 20,000\end{array}$$ On January 1, 2016, the only tangible assets of Subsidiary that were undervalued were inventory and building.Inventory, for which FIFO is used, was worth $5,000 more than cost.The inventory was sold in 2017.Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used.Any remaining excess is goodwill.
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Prepare the necessary date alignment entries for the consolidating worksheet for December 31, 2016 and December 31, 2017 assuming that Parent records its investment in Subsidiary using
a.the cost method
b.the simple equity method
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If date alignment entries are not required, give rationale.