PROBLEM Scenario 3-4

question 4

Essay

PROBLEM
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
-Refer to Scenario 3-4.
Prepare Parent's 20X1 and 20X2 journal entries (after the purchase has been recorded) to record the transactions related to its investment in Subsidiary under the
a.
cost method
b.
simple equity method

---

Definitions:

Employee Satisfaction

Employee satisfaction is the level of contentment employees feel towards their job, work environment, and organizational policies, which can affect productivity and retention.

Job Ranking Method

A simple evaluation system where jobs are ranked in order based on their perceived value or complexity.

Point System

A method used to track, measure, or assign value to certain actions, behaviors, or outcomes, often used in performance evaluation or reward programs.

Lag Strategy

A business approach where a company chooses to delay action or innovation, often to observe competitors' performance or reduce risk.