13. On January 1, 20X1, Parent Company purchased 90% of the common stock of Sub-A Company for $90,00

13.
On January 1, 20X1, Parent Company purchased 90% of
the common stock of Sub-A Company for $90,000. On this date, Sub-A had common
stock, other paid-in capital, and retained earnings of $10,000, $20,000, and
$60,000 respectively.

On January
1, 20X2, Sub-A Company purchased 80% of the common stock of Sub-B Company for
$68,000. On this date, Sub-B Company had common stock, other paid-in capital,
and retained earnings of $5,000, $30,000, and $40,000 respectively.

Any excess of cost over book value on either purchase is due to
a patent, to be amortized over ten years.
Both Parent and Sub-A have accounted for their investments using
the cost method.
On December
31, 20X1, Parent sold used equipment to Sub-A Company. The equipment had a cost
of $45,000 and accumulated depreciation of $20,000. The sale price was $30,000.
During 20X2 and 20X3, Sub-A used the equipment, depreciating it over five years
using the straight-line method.

During 20X2, Sub-B sold merchandise to Sub-A for $20,000, of
which one-fourth is still held by Sub-B on December 31, 20X2. Sub-B’s usual
gross profit is 40%. During 20X3, Sub-B sold more goods to Sub-A for $30,000,
of which $10,000 is still on hand on December 31, 20X3.

Required:

Complete the Figure 8-10 worksheet for consolidated financial
statements for 20X3.

8-29

Chapter
8

19.
On January 1, 20X1, Sub-A Company purchased 80% of
the common stock of Sub-B Company for $56,000, a price equal to book value. On
this date, Sub-B Company had common stock, other paid-in capital, and retained
earnings of $5,000, $30,000, and $35,000 respectively.

On January 1, 20X2, Parent Company purchased 90% of the common
stock of Sub-A Company for $108,000. On this date, Sub-A had common stock,
other paid-in capital, and retained earnings of $10,000, $20,000, and $80,000
respectively. Any excess of cost over book value is due to a patent, to be
amortized over 10 years.

Both Parent and Sub-A have accounted for their investments using
the simple equity method.
During 20X2, Sub-B sold merchandise to Sub-A for $20,000, of
which one-fourth is still held by Sub-B on December 31, 20X2. Sub-B’s usual
gross profit is 40%. During 20X3, Sub-B sold more goods to Sub-A for $30,000,
of which $10,000 is still on hand on December 31, 20X3.

Required:

Complete the Figure 8-11 worksheet for consolidated financial
statements for 20X3.

8-31

8-32

Chapter 8

15.
On January 1, 20X1, Parent Company purchased 85% of
the common stock, 8,500 shares, of Subsidiary Company for $317,500. On this
date, Subsidiary had common stock, other paid-in capital, and retained earnings
of $50,000, $100,000, and $200,000 respectively.

On January
1, 20X2, Subsidiary purchased, from its remaining shareholders, 1,000 shares of
its common stock, 10% of the stock outstanding on that date. The price paid was
$44,000.

Any
excess of cost over book value is due to goodwill.

In both 20X1 and 20X2, Parent has accounted for the Investment
in Subsidiary using the simple equity method.
During the last quarter of 20X2, Subsidiary sold merchandise to
Parent for $40,000, $10,000 of which is still held by Parent on December 31,
20X2. Subsidiary’s usual gross profit on intercompany sales is 40%.

Required:

Complete
the Figure 8-12 worksheet for consolidated financial statements for the year
ended December 31, 20X2. Consolidation procedures should treat the purchase of
the treasury stock as an additional interest purchased by the parent.

16.
On January 1, 20X1, Parent Company purchased 85% of
the common stock of Subsidiary Company for $317,500. On this date, Subsidiary
had common stock, other paid-in capital, and retained earnings of $50,000,
$100,000, and $200,000 respectively.

Any
excess of cost over book value is due to goodwill.

In both 20X1 and 20X2, Parent has accounted for the Investment
in Subsidiary using the simple equity method.
On January
1, 20X2, Subsidiary purchased from outside investors 800 shares of the common
stock of Parent Company, 8% of Parent’s outstanding stock, for $60,000. It is
expected that the shares may be resold at a later date. Subsidiary uses the
cost method in accounting for the investment.

During the last quarter of 20X2, Subsidiary sold merchandise to
Parent for $40,000, $10,000 of which is still held by Parent on December 31,
20X2. Subsidiary’s usual gross profit on intercompany sales is 40%.

Required:

Complete the Figure 8-13 worksheet for consolidated financial statements
for the year ended December 31, 20X2. Use the treasury stock method for the
Investment in Parent Company.

8-34

Chapter 8

"We Offer Paper Writing Services on all Disciplines, Make an Order Now and we will be Glad to Help"