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9 October, 15:01

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

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Answers (1)
  1. 9 October, 17:55
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    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.
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