Question

A parent acquires its subsidiary on January 1, 2019, at a cost that exceeds the subsidiary's book value by $10,000. The subsidiary's assets and liabilities are reported at amounts approximating book value, and there are no previously unreported assets or liabilities. Goodwill from the acquisition is impaired by $300 in 2019 and $100 in 2020. The subsidiary reports net income of $4,500 in 2019 and $3,200 in 2020. The subsidiary has no other comprehensive income and declares no dividends during 2019 or 2020.

On the consolidation working paper at December 31, 2020, eliminating entry (A) includes a debit to the investment in subsidiary account in the amount of:
A. $7,700
B. $4,500
C. $4,200
D. $7,300

Answer 1

Answer:

Correct answer is D $7300

Explanation:

Net income in 2019

$4,500

Net income in 2020

$3,200

Minus: Goodwill from the acquisition impaired in 2019

-$300

Minus: Goodwill from the acquisition impaired in 2020

-$100

Investment in subsidiary account

$7,300

Net income of the subsidiary company will be increasing the parent's asset value on the balance sheet, and any subsidiary's loss or goodwill impairment decreases it.

Answer 2

Answer:

$7300 ( D )

Explanation:

Given the following data

subsidiary net income are

= $4500 for 2019

= $3200 for 2020

Goodwill form acquisitions are

= $300 for 2019

= $100 for 2020

on the consolidation working paper at the end of 2020 when entry A is eliminated

The subsidiary account will be recorded with the amount of

= subsidiary net incomes - goodwill from acquisitions

= ( $4500 - $300 ) + ( $3200 - $100 )

= $4200 + $3100

= $7300