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Advance Accounting

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On January 1, 20X1, Parent Company acquired 80% of the common stock of Subsidiary Company for $560,000 On this. date Subsidiary had total owners' equity of $540,000, including retained earnings of $240,000. During 20X1, Subsidiary had net income of $60,000 and paid no dividends.

Any excess of cost over book value is attributable to land, undervalued $10,000, and to goodwill.

During 20X1 and 20X2, Parent has appropriately accounted for its investment in Subsidiary using the cost method.

On January 1, 20X2, Parent held merchandise acquired from Subsidiary for $10,000. During 20X2, Subsidiary sold merchandise to Parent for $100,000, of which $20,000 is held by Parent on December 31, 20X2. Subsidiary's usual gross profit on affiliated sales is 40%.

On December 31, 20X2, Parent still owes Subsidiary $20,000 for merchandise acquired in December.

On January 1, 20X2, Parent sold to Subsidiary some equipment with a cost of $50,000 and a book value of $20,000. The sales price was $40,000. Subsidiary is depreciating the equipment over a five-year life, assuming no salvage value and using the straight-line method.


Complete the Figure 4-4 worksheet for consolidated financial statements for the year ended December 31, 20X2.

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