Posted by Bob on .
I am attempting to study for an exam for tomorrow and cannot figure out the equity method entries up to 2006 for this problem, can someone please help!
Parent Corporation owns 80% of Subsidiary Corporationâ€™s outstanding common stock that was purchased at book value and fair value on January 1, 1999.
1. Parent sold inventory items that cost $3,000 to Subsidiary during 2006 for $6,000. One-half of this merchandise was inventoried by Subsidiary at year-end. At December 31, 2006, Subsidiary owed Parent $2,000 on account from the inventory sales. No other intercompany sales of inventory have occurred since Parent acquired its interest in Subsidiary.
2.Parent sold a plant asset with a book value of $5,000 and a 5-year useful life to Subsidiary for $10,000 on December 31, 2004. This plant asset remains in use by Subsidiary and is depreciated by the straight-line method.
3.On January 2, 2006, Subsidiary paid $10,800 for $10,000 par value of Parentâ€™s 10-year, 10% bonds. These bonds have interest payment dates of January 1 and July 1, and mature on January 1, 2010. Straight-line amortization has been applied by Subsidiary to the Parent bond investment.