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  3. parent company p owns 70% of the outstanding share

Parent Company P owns 70% of the outstanding shares of Subsidiary Company S. The following...

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Accounting

Parent Company P owns 70% of the outstanding shares of Subsidiary Company S. The following information is available for both companies:

Parent Company P:

  • Net Income: $500,000
  • Dividends Declared: $100,000

Subsidiary Company S:

  • Net Income: $200,000
  • Dividends Declared: $50,000

Additional Information:

  • Parent Company P sold equipment with a carrying value of $80,000 to Subsidiary Company S at a gain of $20,000. The equipment has a remaining useful life of 5 years.
  • Subsidiary Company S sold merchandise to Parent Company P at a markup of 25% on cost. The intra-group sale amounted to $150,000, and 40% of the merchandise remains in Parent Company P's inventory at the end of the year.
  • Parent Company P has a 30% tax rate, and Subsidiary Company S has a 25% tax rate.
  • Any excess acquisition cost is attributed to goodwill.

Calculate the consolidated net income, consolidated retained earnings, and the amount of goodwill recognized in the consolidated financial statements.

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