Assuming That Keen Purchases 100% of Lax for a Consideration

question 55

Essay

Assuming that Keen Purchases 100% of Lax for a consideration of $100,000, and accounts for its investment using the cost method, prepare: a) the journal entry that Keen Inc. would make to record the acquisition; b) the elimination entry necessary to produce consolidated balance sheet on the acquisition date.

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Definitions:

Retained Earnings

Net income that the corporation retains for future use.

Operating Expenses

Expenses incurred through the normal operations of a business, including rent, utilities, and salaries, but excluding costs of goods sold.

Vertical Analysis

A financial analysis method that lists each line item in a single period financial statement as a percentage of a base line figure.

Operating Expenses

The day-to-day costs involved in running a business, excluding the cost of goods sold.