[kv2]

Hello!
I have a question I hope you guys can answer.

So the story is a parent company and its subsidiary have the conditions stated below... and I have to prepare the working paper elimination entries.

1
Acquired interest: 100%
Amount paid: 1,450,000

Subsidiary capital balances-
Capital stock: 1,000,000
Other contributed cap: 250,000
Retained earnings: 300,000

2
Acquired interest: 90%
Amount paid: 1,125,000

Subsidiary capital balances-
Capital stock: 1,000,000
Other contributed cap: 325,000
Retained earnings: (100,000)


So...

Going back to the basics.. the elimination entries are required because when the parent and sub. Prepare consolidated financial statements we want to get rid of all the overlapping that will occur, right? Such as intercompany transactions?

[rehmanvohra]

Investment in subsidiary will be eliminated against the shareholders' equity balances on the date of acquisition. If it is a 100% subsidiary, ALL subsidiary SE accounts will be eliminated. If it is less than 100%, then the SE accounts will be eliminated to the extent of control held by parent and the balance goes to Minority or Non Controlling Interest.

If there is a balance remaining after elimination, it represents goodwill. Positive goodwill is carried forward but negative goodwill is credited to retained earnings of parent.

Elimination of "overlapping" accounts is carried out at the end of the year. There are so many items that need to be eliminated it is not possible to explain in this forum. You need to refer to appropriate text book.

[kv2]

Hm that seems like it would make more sense to eliminate to the extent of control held by parent..

But the answer I am provided eems to say otherwise:

For 2
Dr capital stock 1,000,000
Dr other capital 325,000
Dr differential 22,500
Cr retained earnings 100,000
Cr minority interest 122,500
Cr investment in subsidiary 1,250,000

It seems even though the parent acquired only 90% of the susidiary, 100% of the subsidiary's capital balances are eliminated?

[rehmanvohra]

I have would suggest the following entries:
(a) Eliminate Investment in subsidiary
Debit Share capital 900,000
Debit other contributed capital 292,500
Debit Goodwill 22,500
Credit Retained earnings 90,000
Credit Investment in subsidiary 1,125,000

(b) Eliminate subsidiary's equity accounts
Debit Share capital 90,000
Debit Other contributed capital 32,500
Credit Retained earnings 10,000
Credit Minority Interest 112,500