Question

ParCorp spent $720K to acquire all of ChiCorp's stock on January 1, 20X2, when ChiCorp's retained...

ParCorp spent $720K to acquire all of ChiCorp's stock on January 1, 20X2, when ChiCorp's retained earnings was $300K. Difference between the acquisition price and ChiCorp's underlying book value was attributed to buildings with a remaining economic life of 10 years from the date of acquisition. On December 31, 20X3, ParCorp reported Investment in sub of $756K, while ChiCorp reported common stock of $300K, retained earnings of $360K. Prepare the elimination entry in entry format for consolidation on Dec 31, 20X3.

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Answer #1

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Step 1

Intercompany transaction:

Intercompany transaction can be defined as the exchange of resources between the parent and the subsidiary company. These transactions lead to dispute between the parent company and its related parties. Elimination entries are prepared for all the intercompany transactions.

Step 2

Eliminating journal entries:

Date

Accounts and explanation

Debit $

Credit $

1 Jan 20X2

Building

$420K

Retained earnings

$300K

      Investment in Subsidiary

$720K

(To record the basic elimination entry)

31 Dec 20X3

Common stock

$300K

Retained earnings

$360K

Goodwill

$96K

Investment in subsidiary

$756K

(To record the excess value)
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