IAU Pass Journal Entries in Books of X Corporation Using Cost Method Questions

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Assignment Question(s):
(10.0 Marks)
1. Assume X Corp creates a subsidiary, Y Corp, and invests $500,000 cash in exchange for all
of the $1 par common stock (2,000 shares). (2.5 marks)
What would journal entries X and Y make at the time of the investment?
Answer:
2. X Corporation created Y Corporation with a transfer of $1,000 cash. During Y Corp.’s first
year of operations, it generated a net loss of $50 and paid no dividends. During Y Corp.’s
second year of operations, it generated net income of $100 and paid cash dividends of $30.
(2.5 marks)
Required:
A. Pass journal entries in the books of X corp. in year 1 and year 2 using equity method.
B. What is the balance of investment account at the end of year 2 using equity method?
C. Pass journal entries in the books of X corp. in year 1 and year 2 using cost Method.
D. What is the balance of investment account at the end of year 2 using cost method?
Answer:
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3. X Corp. Acquired 100% of common stock of Y Corp. Paying $ 2 Million in return for 50
Thousand common stock with $ 1 par value. Y Corp. realized $100 Thousand net income
and paid $30 Thousand cash dividends. (2.5 marks)
Required: pass basic elimination entries in consolidation work sheet.
Answer:
4. X Corp. Acquired 100% of common stock of Y Corp. X Corp. assumed acquisition
expenses as follows (amounts in $)(2.5 marks)
Legal fees
50,000
Accounting fees
30,000
Travel expenses
10,000
Legal fees (stock issue)
Accounting fees (stock)
SEC filing fees (stock)
20,000
15,000
10,000
Prior to the acquisition date, $90,000 have been paid and capitalized to a deferred charges account
on the balance sheet. The remaining $45,000 has not been paid or accrued.
Required:
Prepare the journal entry to record the acquisition expenses.
Answer:
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