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h co has controlling interests in three subsidiaries as shown in the data below subs 737266

H Co. has controlling interests in three subsidiaries, as shown in the data below:

Subsidiaries

Retained earnings at acquisition

H Co.

L Co.

$30,000

J Co.

$40,000

K Co.

$25,000

Percentage ownership

95%

90%

85%

Retained earnings, Jan. 1, Year 5

$12,000

50,000

43,000

30,000

Profit (loss), Year 5

20,000

(5,000)

30,000

Dividends paid, Year 5

10,000

5,000

3,000

15,000

Intercompany sales

50,000

70,000

K Co. had items in its inventory on January 1, Year 5, on which L Co. had made a profit of $5,000. J Co. had items in its inventory on December 31, Year 5, on which K Co. had made a profit of $8,000. J Co. rents premises from L Co. at an annual rental of $8,500. The parent company has no income (other than from its investments) and no expenses. It uses the equity method of recording its investments but has made no entries during Year 5. Assume a 40% tax rate.

Required:

Prepare the following related to its investments:

(a) Entries that H Co. would make in Year 5.

(b) A calculation of consolidated r etained earnings, January 1, Y ear 5.

(c) A calculatio n o f consolidate d p r ofi t attributabl e t o sha r eholder s o f H Co . fo r Y ea r 5.

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