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Consolidation at the end of the first year subsequent to date of acquisition—Cost method (purchase price...

Consolidation at the end of the first year subsequent to date of acquisition—Cost method (purchase price equals book value)
Assume that the parent company acquires its subsidiary on January 1, 2016, by exchanging 31,500 shares of its $1 par value Common Stock, with a market value on the acquisition date of $40 per share, for all of the outstanding voting shares of the acquiree. You have been charged with preparing the consolidation of these two companies at the end of the first year. On the acquisition date, all of the subsidiary’s assets and liabilities had fair values equaling their book values. Following are financial statements of the parent and its subsidiary for the year ended December 31, 2016.

Parent Subsidiary Parent Subsidiary
Income statement Balance sheet
Sales $3,330,000 $1,890,000 Assets
Cost of goods sold (2,331,000) (1,134,000) Cash $789,660 $486,990
Gross profit 999,000 756,000 Accounts receivable 426,240 438,480
Equity income 39,690 - Inventory 646,020 563,220
Operating expenses (632,700) (491,400) Equity investment 1,260,000 -
Net income $405,990 $264,600 Property, plant & equipment 2,441,556 1,042,020
Statement of retained earnings $5,563,476 $2,530,710
BOY retained earnings 2,116,800 976,500 Liabilities and stockholders' equity
Net income 405,990 264,600 Accounts payable $243,756 $180,180
Dividends (126,180) (39,690) Accrued liabilities 289,710 235,620
Ending retained earnings $2,396,610 $1,201,410 Long-term liabilities - 630,000
Common stock 466,200 126,000
APIC 2,167,200 157,500
Retained earnings 2,396,610 1,201,410
$5,563,476 $2,530,710

a. Prepare the journal entry to record the acquisition of the subsidiary.

General Journal
Description Debit Credit
Answer
Answer Answer
Common stock Answer Answer
Answer
Answer Answer


b. Prepare the consolidation entries for the year ended December 31, 2016.

If no consolidation entry is necessary for a particular step (i.e. ADJ, C, or E), select "No entry" as your answers for the journal descriptions.

Consolidation Journal
Description Debit Credit
[ADJ] Answer
Answer Answer
Answer
Answer Answer
[C] Answer
Answer Answer
Answer
Answer Answer
[E] Common stock Answer Answer
APIC Answer Answer
Answer
Answer Answer
Answer
Answer Answer
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