Question

Parent Co paid $176,000 for 80% of the outstanding voting stock of Sub Co on January 1, 2018, when Sub Co’s stockholders’ equity consisted of $120,000 common stock and $60,000 retained earnings. This implied that the total fair value of Sub co is $220,000 ($176,000 / 80%). The company assigned the $40,000 excess fair value to previously unrecorded patents with a 10-year useful life.

Parent Co’s $36,800 income from Sub Co for 2018 consisted of 80% of Sub Co’s $50,000 net income less $3,200 ($40,000 / 10 year life * 80%) patent amortization. Parent Co’s investment in subsidiary account at December 31, 2018 consisted of the following:

Investment in Sub Co (1/1/18)	$176,000
Income from subsidiary	36,800
Less: Dividend from Sub Co	(24,000)
Investment in subsidiary (12/31/18)	$188,800

Required: Using the Excel file “Case 1 - Advanced accounting topics” and the worksheet “Consolidation,” prepare and show the required adjusting and eliminating journal entries (in journal entry form) and complete the worksheet, posting the journal entries to the worksheet and completing the Consolidated column with the totals. Make sure to appropriately cross-reference your journal entries with the worksheet. Show calculations when appropriate.

Consolidation Accounting Separate Company Financial Statements Parent Co S ub Co Adjustments and Eliminations DR - Consolidated 130,000 500,000 36,800 536,800 130,000 400,000 400,000 136,800 80,000 80,000 50,000 136,800 50,000 Income Statement Net sales Income from subsidiary Total revenue Expenses Other expenses Total expenses Consolidated net income Noncontrolling interest share Controlling share of net income Statement of Retained Earnings Beginning retained earnings Net income Dividends Ending retained earnings Balance Sheet Assets Cash Other current assets Total current assets Plant and equipment, net Patents, net Investment in subsidiary Total assets 10,000 136,800 (60,000) 86,800 60,000 50,000 (30,000) 80,000 78,000 180,000 258,000 500,000 20,000 100,000 120,000 140,000 0 188,800 946,800 260,000 Liabilities & Stockholders' Equity Other liabilities | Total current liabilities Common stock Retained earnings Noncontrolling interest Total stockholders' equity Total liab & stockholders' eq 160,000 160,000 700,000 86,800 60,000 60,000 120,000 80,000 786,800 200,000 260,000 946,800

Answer 1

Adjustments and elimination journal entries	Debit	Credit
Retained earnings of subsidiary company	36800		For 80% of holding in subsidiary company
Income from subsidiary- in Parent Co		36800
Dividends in the books of sub co	24000		For dividends declaration
Dividends from sub co in parent co		24000
Common stock of subsidiary company	96000
Retained earnings of subsidiary company	64000
Goodwill	28800
Investment in subsidiary		188800
Cosolidation Accounting
	Separate Company Financial			Adjustments and Eliminations		Consolidated
	Statements
	Parent Co	Sub Co		Dr	Cr
Income statement
Net sales	500000	130000				630000
Income from subsidiary	36800	0		36800		0
Total Revenue	536800	130000				630000
Expenses
Other expenses	400000	80000				480000
Total expenses	400000	80000				480000
Consolidated net income	136800	50000				150000
Statement of retained earnings
Beginning retained earnings	10000	60000		0		70000
Net income	136800	50000		36800	0	150000
Less:Dividends	60000	30000		24000		66000
Ending Retained earnings	86800	80000		24000		154000
Balance sheet
Cash	78000	20000				98000
Other current assets	180000	100000				280000
Total current assets	258000	120000				378000
Plant and equipment ,net	500000	140000				640000
Investment in subsidiary	188800	0			188800	0
Goodwill				28800		28800
Total assets	946800	260000				1046800
Liabilities & Stockholder's equity
Other liabilities	160000	60000				220000
Total current liabilities	160000	60000				220000
Common stock	700000	120000		96000		724000
Retained earnings	86800	80000		64000		102800
Total stockholder's equity	786800	200000				826800
Total liabilites and stockholder's equity	946800	260000				1046800