PROBLEM Scenario 3-4

question 3

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 all necessary elimination entries for the consolidating worksheet of December 31, 20X2. Assume Parent uses the simple equity method of accounting for its investment in Subsidiary.

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Definitions:

Lie-Detection Methods

Techniques used to determine the veracity of an individual's statements, typically involving physiological measurements such as polygraph tests.

Polygraphs

Lie detector tests that measure and record several physiological indicators such as blood pressure, pulse, respiration, and skin conductivity while the subject answers a series of questions.

Intelligence Quotient

A numerical measure of a person's intelligence, typically obtained through standardized testing.

Intelligence Tests

Standardized tests designed to measure a person's intellectual abilities and potential.