On January 1, 20161, Parent Company Purchased 80% of the Common

question 20

Essay

On January 1, 20161, 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:
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$$\begin{array} { l r r } & 2016 & 2017 \\\text { Netincome } & \$ 50,000 & \$ 90,000 \\\text { Dividends } & 10,000 & 20,000\end{array}$$ On January 1, 2016, 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 2017.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.
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Prepare the necessary date alignment entries for the consolidating worksheet for December 31, 2016 and December 31, 2017 assuming that Parent records its investment in Subsidiary using
a.the cost method
b.the simple equity method
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If date alignment entries are not required, give rationale.

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Definitions:

Taxes Levied

Charges imposed by governments on individuals or entities to fund government spending on public services and infrastructure.

Tax Burden

The total amount of tax levied on an individual or entity, indicating the actual economic impact of taxation on wealth.

Tax Imposed

A financial charge or levy placed by a government on an individual or an entity to fund public expenditures.

Buyer Pays

A pricing term indicating that the purchaser is responsible for the cost of goods, shipping, and any additional expenses associated with the purchase.