accounts data bank accounts data bank Question 17. On January 1, 20X7, Parent Company purchased 80% of the common stock of Subsidiary Company for $402,000. On this date Subsidiary had total owners' equity of $440,000. Save your time! Proper editing and formatting Free revision, title page, and bibliography Flexible prices and money-back guarantee ORDER NOW Any excess of cost over book value is due to goodwill. Make sure you submit a unique essay Our writers will provide you with an essay sample written from scratch: any topic, any deadline, any instructions. 100% ORIGINAL ORDER NOW During 20X7 and 20X8, Parent has appropriately accounted for its investment in Subsidiary using the simple equity method. On January 1, 20X8, Parent held merchandise acquired from Subsidiary for $30,000. During 20X8, Subsidiary sold merchandise to Parent for $100,000, of which $50,000 is held by Parent on December 31, 20X8. Subsidiary's usual gross profit on affiliated sales is 40%. On December 31, 20X8, Parent still owes Subsidiary $10,000 for merchandise acquired in December. On December 31, 20X7, Parent sold $100,000 par value of 11%, 10-year bonds for $106,232, which resulted in an effective interest rate of 10%. The bonds pay interest semi-annually on June 30 and December 31. Parent uses the effective interest method of amortization for the premium. An amortization table for 20X2 is presented below: Carrying Carrying Effective Interest Nominal Premium Value on Value Interest Expense Interest Write-off 12-31-X7 $106,232 5% $5,312 $5,500 - $188 6-30-X8 - 188 5% 5,302 5,500 - 198 - 106,044 12-31-X8 198 $105,846 ======== On December 31, 20X8, Subsidiary repurchased $50,000 par value of the bonds, paying a price equal to par. Required: Complete the Figure 5-16 worksheet for consolidated financial statements for the year ended December 31, 20X8. Round all computations to the nearest dollar. 5-37 Chapter 5 18. On January 1, 20X7, Parent Company purchased 80% of the common stock of Subsidiary Company for $402,000. On this date Subsidiary had total owners' equity of $440,000. Any excess of cost over book value is due to goodwill. During 20X7, 20X8, and 20X9, Parent has appropriately accounted for its investment in Subsidiary using the simple equity method. On January 1, 20X9, Parent held merchandise acquired from Subsidiary for $50,000. During 20X9, Subsidiary sold merchandise to Parent for $120,000, of which Parent holds $30,000 on December 31, 20X9. Subsidiary's gross profit on sales is 40%. On December 31, 20X9, Parent still owes Subsidiary $5,000 for merchandise. On December 31, 20X9, Parent sold $100,000 par value of 11%, 10-year bonds for $106,232, which resulted in an effective interest rate of 10%. The bonds pay interest semi-annually on June 30 and December 31. Parent uses the effective-interest method of amortization for the premium. An amortization table for 20X2 and 20X3 is presented below: Carrying Carrying Effective Interest Nominal Premium Value on Value Interest Expense Interest Write-off 12-31-X7 $106,232 5% $5,312 $5,500 - $188 6-30-X8 - 188 5% 5,302 5,500 - 198 - 106,044 12-31-X8 198 5% 5,292 5,500 - 208 - 105,846 6-30-X9 208 5% 5,282 5,000 - 218 - 105,638 12-31-X9 218 $105,420 ======== On December 31, 20X8, Subsidiary repurchased $50,000 par value of the bonds, paying a price equal to par. The bonds are still held on December 31, 20X9. On December 31, 20X9, Parent sold equipment with a cost of $50,000 and accumulated depreciation of $30,000 to Subsidiary for $40,000. Subsidiary will use the equipment beginning in 20X0. Required: Complete the Figure 5-17 worksheet for consolidated financial statements for the year ended December 31, 20X9. Round all computations to the nearest dollar. 5-38 Chapter 5 5-39 Chapter 5 19. On January 1, 20X7, Parent Company purchased 80% of the common stock of Subsidiary Company for $402,000. On this date Subsidiary had total owners' equity of $440,000 including retained earnings of $140,000. Any excess of cost over book value is due to goodwill. During 20X7, 20X8, and 20X9, Parent has appropriately accounted for its investment in Subsidiary using the cost method. On January 1, 20X9, Parent held merchandise acquired from Subsidiary for $50,000. During 20X9, Subsidiary sold merchandise to Parent for $120,000, of which $30,000 is held by Parent on December 31, 20X9. Subsidiary's usual gross profit on affiliated sales is 40%. On December 31, 20X9, Parent still owes Subsidiary $5,000 for merchandise acquired in December. On December 31, 20X7, Parent sold $100,000 par value of 10%, 10-year bonds for $102,000. Parent uses the straight-line method of amortization for the premium. The bonds pay interest semi-annually on June 30 and December 31. On December 31, 20X8, Subsidiary repurchased $50,000 par value of the bonds, paying $49,100. Subsidiary uses the straight-line method of amortization for the discount. The bonds are still held on December 31, 20X9. Required: Complete the Figure 5-18 worksheet for consolidated financial statements for the year ended December 31, 20X9. Round all computations to the nearest dollar. 5-40 Chapter 5 5-41 Chapter 5 ESSAY 1. The Park Company owns 80% of the outstanding common stock of the Sea Company. Park is about to lease a machine with a 5-year life to the Sea Company. The lease would begin January 1, 20X8. Required: Explain the adjustments that will be required in the consolidation process if each of the following occurs. a. The lease is an operating lease. b. The lease is a direct financing lease with a bargain purchase option. c. The lease is a sales-type lease with a bargain purchase option.