Journal entries that parent company would record in case of internal expansion. Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 1, Problem 1.6E

a.

To determine

To prepare: Journal entries that parent company would record in case of internal expansion.

Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).

a.

Expert Solution

Explanation of Solution

In the books of parent company:

Record transfer of assets and liabilities:

Date	Account	Debit ($)	Credit($)
	Investment in Subsidiary M common stock	498,000
	Provision for doubtful debts ($75,000−$68,000)	7,000
	Accumulated depreciation-Buildings ($160,000−$125,000)	35,000
	Accumulated depreciation- Equipment ($240,000−$180,000)	60,000
	Cash		40,000
	Accounts Receivable		75,000
	Inventory		50,000
	Land		35,000
	Building		160,000
	Equipment		240,000
	(To record formation of subsidiary.)

Table (1)

Investment in Subsidiary M common stock is an asset and it is increased by $498,000. Therefore, Investment in Subsidiary M common stock account is debited with $498,000.

Provision for doubtful debts is a contra asset and it is decreased by $7,000. Therefore, Provision for doubtful debts account is debited with $7,000.

Accumulated depreciation-Building is a contra asset and it is decreased by $35,000. Therefore, Accumulated depreciation- Buildings account is debited with $35,000.

Accumulated depreciation-Equipment is a contra asset and it is decreased by $60,000. Therefore, Accumulated depreciation- Equipment account is debited with $60,000.

Cash is an asset and it is decreased by $40,000. Therefore, cash account is credited with $40,000.

Accounts Receivable is an asset and it is decreased by $75,000. Therefore, Accounts Receivable account is credited with $75,000.

Inventory is an asset and it is decreased by $50,000. Therefore, Inventory account is credited with $50,000.

Land is an asset and it is decreased by $35,000. Therefore, Land account is credited with $35,000.

Building is an asset and it is decreased by $160,000. Therefore, account is credited with $160,000.

Equipment is an asset and it is decreased by $240,000. Therefore, account is credited with $240,000.

b.

To determine

To prepare: Journal entries that subsidiary company would record.

Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).

b.

Expert Solution

Explanation of Solution

In the books of subsidiary company:

Record transfer of assets and liabilities:

Date	Account	Debit ($)	Credit($)
	Cash	40,000
	Accounts Receivable	75,000
	Inventory	50,000
	Land	35,000
	Buildings	160,000
	Equipment	240,000
	Provision for doubtful debts ($75,000−$68,000)		7,000
	Accumulated depreciation-Buildings ($160,000−$125,000)		35,000
	Accumulated depreciation- Equipment ($240,000−$180,000)		60,000
	Common Stock, $3 par		120,000
	Additional paid in capital (balancing figure)		378,000
	(To record receipt of assets and liabilities and issuance of stock.)

Table (2)

Cash is an asset and it is increased by $40,000. Therefore, cash account is debited with $40,000.

Accounts Receivable is an asset and it is increased by $75,000. Therefore, Accounts Receivable account is debited with $75,000.

Inventory is an asset and it is increased by $50,000. Therefore, Inventory account is debited with $50,000.

Land is an asset and it is increased by $35,000. Therefore, Land account is debited with $35,000.

Building is an asset and it is increased by $160,000. Therefore, Buildings account is debited with $160,000.

Equipment is an asset and it is increased by $240,000. Therefore, Equipment account is debited with $240,000.

Provision for doubtful debts is a contra asset and it is increased by $7,000. Therefore, Provision for doubtful debts account is credited with $7,000.

Accumulated depreciation-Building is a contra asset and it is increased by $35,000. Therefore, Accumulated depreciation- Buildings account is credited with $35,000.

Accumulated depreciation- Equipment is a contra asset and it is increased by $60,000. Therefore, Accumulated depreciation- Equipment account is credited with $60,000.

Common Stock is equity and it is increased by $120,000. Therefore, Common Stock account is credited with $120,000.

Additional paid in capital is equity and it is increased by $378,000. Therefore, Additional paid in capital account is credited with $378,000.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

The PTCL Ltd acquires all issued capital of the S Ltd for a consideration of $1,000,000 cash and 800,000 shares each valued at $1.50. The summary statement of the financial position of the subsidiary company immediately following the acquisition is: Fair value of assets acquired $2,640,000 Fair value of liabilities acquired $720,000 Total shareholders’ equity of the subsidiary company $800,000 Retained earnings of the subsidiary company $1,120,000 Required: (a) Pass the necessary journal entry to record the acquisition (b) Determine the amount of goodwill (or bargain purchase) arising out of the acquisition (c) Pass the necessary consolidation entry to eliminate the subsidiary by the parent company (d) Determine the amount of goodwill (or bargain purchase) arising out of the acquisition if the purchase consideration paid was $1,000,000 cash and 400,000 shares each valued at $1.50.Thanks

Pab Corporation decided to establish Sollon Company as a wholly owned subsidiary by transferring some of its existing assets and liabilities to the new entity. In exchange, Sollon issued Pab 35,000 shares of $7 par value common stock. The following information is provided on the assets and accounts payable transferred: Cost Book Value Fair Value Cash $ 32,000 $ 32,000 $ 32,000 Inventory 83,000 83,000 83,000 Land 69,000 69,000 99,000 Buildings 188,000 147,000 249,000 Equipment 95,000 74,000 123,000 Accounts Payable 58,000 58,000 58,000 Required: Prepare the journal entry that Pab recorded for the transfer of assets and accounts payable to Sollon Prepare the journal entry that Sollon recorded for the receipt of assets and accounts payable from Pab.

Parent Company acquires a subsidiary by issuing 100,000 common shares with a market value of $25 per share for all of the subsidiary's common stock. The subsidiary's assets and liabilities were recorded at fair values with the exception of equipment undervalued by $225,000. In addition, there were two unrecorded assets: a trademark valued at $175,000 and a customer list valued by the subsidiary at $60,000. The balance sheets of the parent and subsidiary immediately after the acquisition are presented below: Parent Subsidiary Cash $740,000 $420,000 Accounts Receivable 900,000 625,000 Inventory 440,000 750,000 Equity Investment 2,500,000 Property, plant and equipment (net) 3,190,000 1,205,000 $7,770,000 $3,000,000 Accounts payable $125,000 $145,000 Salaries payable 60,000 35,400 Long-Term Notes Payable 700,000 850,000 Common Stock 200,000 150,000 Additional paid-in capital 5,000,000…

Answer 2

Question

Chapter 1, Problem 1.6E

a.

To determine

To prepare: Journal entries that parent company would record in case of internal expansion.

Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).

a.

Expert Solution

Explanation of Solution

In the books of parent company:

Record transfer of assets and liabilities:

Date	Account	Debit ($)	Credit($)
	Investment in Subsidiary M common stock	498,000
	Provision for doubtful debts ($75,000−$68,000)	7,000
	Accumulated depreciation-Buildings ($160,000−$125,000)	35,000
	Accumulated depreciation- Equipment ($240,000−$180,000)	60,000
	Cash		40,000
	Accounts Receivable		75,000
	Inventory		50,000
	Land		35,000
	Building		160,000
	Equipment		240,000
	(To record formation of subsidiary.)

Table (1)

Investment in Subsidiary M common stock is an asset and it is increased by $498,000. Therefore, Investment in Subsidiary M common stock account is debited with $498,000.

Provision for doubtful debts is a contra asset and it is decreased by $7,000. Therefore, Provision for doubtful debts account is debited with $7,000.

Accumulated depreciation-Building is a contra asset and it is decreased by $35,000. Therefore, Accumulated depreciation- Buildings account is debited with $35,000.

Accumulated depreciation-Equipment is a contra asset and it is decreased by $60,000. Therefore, Accumulated depreciation- Equipment account is debited with $60,000.

Cash is an asset and it is decreased by $40,000. Therefore, cash account is credited with $40,000.

Accounts Receivable is an asset and it is decreased by $75,000. Therefore, Accounts Receivable account is credited with $75,000.

Inventory is an asset and it is decreased by $50,000. Therefore, Inventory account is credited with $50,000.

Land is an asset and it is decreased by $35,000. Therefore, Land account is credited with $35,000.

Building is an asset and it is decreased by $160,000. Therefore, account is credited with $160,000.

Equipment is an asset and it is decreased by $240,000. Therefore, account is credited with $240,000.

b.

To determine

To prepare: Journal entries that subsidiary company would record.

Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).

b.

Expert Solution

Explanation of Solution

In the books of subsidiary company:

Record transfer of assets and liabilities:

Date	Account	Debit ($)	Credit($)
	Cash	40,000
	Accounts Receivable	75,000
	Inventory	50,000
	Land	35,000
	Buildings	160,000
	Equipment	240,000
	Provision for doubtful debts ($75,000−$68,000)		7,000
	Accumulated depreciation-Buildings ($160,000−$125,000)		35,000
	Accumulated depreciation- Equipment ($240,000−$180,000)		60,000
	Common Stock, $3 par		120,000
	Additional paid in capital (balancing figure)		378,000
	(To record receipt of assets and liabilities and issuance of stock.)

Table (2)

Cash is an asset and it is increased by $40,000. Therefore, cash account is debited with $40,000.

Accounts Receivable is an asset and it is increased by $75,000. Therefore, Accounts Receivable account is debited with $75,000.

Inventory is an asset and it is increased by $50,000. Therefore, Inventory account is debited with $50,000.

Land is an asset and it is increased by $35,000. Therefore, Land account is debited with $35,000.

Building is an asset and it is increased by $160,000. Therefore, Buildings account is debited with $160,000.

Equipment is an asset and it is increased by $240,000. Therefore, Equipment account is debited with $240,000.

Provision for doubtful debts is a contra asset and it is increased by $7,000. Therefore, Provision for doubtful debts account is credited with $7,000.

Accumulated depreciation-Building is a contra asset and it is increased by $35,000. Therefore, Accumulated depreciation- Buildings account is credited with $35,000.

Accumulated depreciation- Equipment is a contra asset and it is increased by $60,000. Therefore, Accumulated depreciation- Equipment account is credited with $60,000.

Common Stock is equity and it is increased by $120,000. Therefore, Common Stock account is credited with $120,000.

Additional paid in capital is equity and it is increased by $378,000. Therefore, Additional paid in capital account is credited with $378,000.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 1, Problem 1.6E

a.

To determine

To prepare: Journal entries that parent company would record in case of internal expansion.

Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).

a.

Expert Solution

Explanation of Solution

In the books of parent company:

Record transfer of assets and liabilities:

Date	Account	Debit ($)	Credit($)
	Investment in Subsidiary M common stock	498,000
	Provision for doubtful debts ($75,000−$68,000)	7,000
	Accumulated depreciation-Buildings ($160,000−$125,000)	35,000
	Accumulated depreciation- Equipment ($240,000−$180,000)	60,000
	Cash		40,000
	Accounts Receivable		75,000
	Inventory		50,000
	Land		35,000
	Building		160,000
	Equipment		240,000
	(To record formation of subsidiary.)

Table (1)

Investment in Subsidiary M common stock is an asset and it is increased by $498,000. Therefore, Investment in Subsidiary M common stock account is debited with $498,000.

Provision for doubtful debts is a contra asset and it is decreased by $7,000. Therefore, Provision for doubtful debts account is debited with $7,000.

Accumulated depreciation-Building is a contra asset and it is decreased by $35,000. Therefore, Accumulated depreciation- Buildings account is debited with $35,000.

Accumulated depreciation-Equipment is a contra asset and it is decreased by $60,000. Therefore, Accumulated depreciation- Equipment account is debited with $60,000.

Cash is an asset and it is decreased by $40,000. Therefore, cash account is credited with $40,000.

Accounts Receivable is an asset and it is decreased by $75,000. Therefore, Accounts Receivable account is credited with $75,000.

Inventory is an asset and it is decreased by $50,000. Therefore, Inventory account is credited with $50,000.

Land is an asset and it is decreased by $35,000. Therefore, Land account is credited with $35,000.

Building is an asset and it is decreased by $160,000. Therefore, account is credited with $160,000.

Equipment is an asset and it is decreased by $240,000. Therefore, account is credited with $240,000.

b.

To determine

To prepare: Journal entries that subsidiary company would record.

Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).

b.

Expert Solution

Explanation of Solution

In the books of subsidiary company:

Record transfer of assets and liabilities:

Date	Account	Debit ($)	Credit($)
	Cash	40,000
	Accounts Receivable	75,000
	Inventory	50,000
	Land	35,000
	Buildings	160,000
	Equipment	240,000
	Provision for doubtful debts ($75,000−$68,000)		7,000
	Accumulated depreciation-Buildings ($160,000−$125,000)		35,000
	Accumulated depreciation- Equipment ($240,000−$180,000)		60,000
	Common Stock, $3 par		120,000
	Additional paid in capital (balancing figure)		378,000
	(To record receipt of assets and liabilities and issuance of stock.)

Table (2)

Cash is an asset and it is increased by $40,000. Therefore, cash account is debited with $40,000.

Accounts Receivable is an asset and it is increased by $75,000. Therefore, Accounts Receivable account is debited with $75,000.

Inventory is an asset and it is increased by $50,000. Therefore, Inventory account is debited with $50,000.

Land is an asset and it is increased by $35,000. Therefore, Land account is debited with $35,000.

Building is an asset and it is increased by $160,000. Therefore, Buildings account is debited with $160,000.

Equipment is an asset and it is increased by $240,000. Therefore, Equipment account is debited with $240,000.

Provision for doubtful debts is a contra asset and it is increased by $7,000. Therefore, Provision for doubtful debts account is credited with $7,000.

Accumulated depreciation-Building is a contra asset and it is increased by $35,000. Therefore, Accumulated depreciation- Buildings account is credited with $35,000.

Accumulated depreciation- Equipment is a contra asset and it is increased by $60,000. Therefore, Accumulated depreciation- Equipment account is credited with $60,000.

Common Stock is equity and it is increased by $120,000. Therefore, Common Stock account is credited with $120,000.

Additional paid in capital is equity and it is increased by $378,000. Therefore, Additional paid in capital account is credited with $378,000.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 1, Problem 1.6E

a.

To determine

To prepare: Journal entries that parent company would record in case of internal expansion.

Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).

a.

Expert Solution

Explanation of Solution

In the books of parent company:

Record transfer of assets and liabilities:

Date	Account	Debit ($)	Credit($)
	Investment in Subsidiary M common stock	498,000
	Provision for doubtful debts ($75,000−$68,000)	7,000
	Accumulated depreciation-Buildings ($160,000−$125,000)	35,000
	Accumulated depreciation- Equipment ($240,000−$180,000)	60,000
	Cash		40,000
	Accounts Receivable		75,000
	Inventory		50,000
	Land		35,000
	Building		160,000
	Equipment		240,000
	(To record formation of subsidiary.)

Table (1)

Investment in Subsidiary M common stock is an asset and it is increased by $498,000. Therefore, Investment in Subsidiary M common stock account is debited with $498,000.

Provision for doubtful debts is a contra asset and it is decreased by $7,000. Therefore, Provision for doubtful debts account is debited with $7,000.

Accumulated depreciation-Building is a contra asset and it is decreased by $35,000. Therefore, Accumulated depreciation- Buildings account is debited with $35,000.

Accumulated depreciation-Equipment is a contra asset and it is decreased by $60,000. Therefore, Accumulated depreciation- Equipment account is debited with $60,000.

Cash is an asset and it is decreased by $40,000. Therefore, cash account is credited with $40,000.

Accounts Receivable is an asset and it is decreased by $75,000. Therefore, Accounts Receivable account is credited with $75,000.

Inventory is an asset and it is decreased by $50,000. Therefore, Inventory account is credited with $50,000.

Land is an asset and it is decreased by $35,000. Therefore, Land account is credited with $35,000.

Building is an asset and it is decreased by $160,000. Therefore, account is credited with $160,000.

Equipment is an asset and it is decreased by $240,000. Therefore, account is credited with $240,000.

b.

To determine

To prepare: Journal entries that subsidiary company would record.

Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).

b.

Expert Solution

Explanation of Solution

In the books of subsidiary company:

Record transfer of assets and liabilities:

Date	Account	Debit ($)	Credit($)
	Cash	40,000
	Accounts Receivable	75,000
	Inventory	50,000
	Land	35,000
	Buildings	160,000
	Equipment	240,000
	Provision for doubtful debts ($75,000−$68,000)		7,000
	Accumulated depreciation-Buildings ($160,000−$125,000)		35,000
	Accumulated depreciation- Equipment ($240,000−$180,000)		60,000
	Common Stock, $3 par		120,000
	Additional paid in capital (balancing figure)		378,000
	(To record receipt of assets and liabilities and issuance of stock.)

Table (2)

Cash is an asset and it is increased by $40,000. Therefore, cash account is debited with $40,000.

Accounts Receivable is an asset and it is increased by $75,000. Therefore, Accounts Receivable account is debited with $75,000.

Inventory is an asset and it is increased by $50,000. Therefore, Inventory account is debited with $50,000.

Land is an asset and it is increased by $35,000. Therefore, Land account is debited with $35,000.

Building is an asset and it is increased by $160,000. Therefore, Buildings account is debited with $160,000.

Equipment is an asset and it is increased by $240,000. Therefore, Equipment account is debited with $240,000.

Provision for doubtful debts is a contra asset and it is increased by $7,000. Therefore, Provision for doubtful debts account is credited with $7,000.

Accumulated depreciation-Building is a contra asset and it is increased by $35,000. Therefore, Accumulated depreciation- Buildings account is credited with $35,000.

Accumulated depreciation- Equipment is a contra asset and it is increased by $60,000. Therefore, Accumulated depreciation- Equipment account is credited with $60,000.

Common Stock is equity and it is increased by $120,000. Therefore, Common Stock account is credited with $120,000.

Additional paid in capital is equity and it is increased by $378,000. Therefore, Additional paid in capital account is credited with $378,000.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 1, Problem 1.6E

a.

To determine

To prepare: Journal entries that parent company would record in case of internal expansion.

Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).

a.

Expert Solution

Explanation of Solution

In the books of parent company:

Record transfer of assets and liabilities:

Date	Account	Debit ($)	Credit($)
	Investment in Subsidiary M common stock	498,000
	Provision for doubtful debts ($75,000−$68,000)	7,000
	Accumulated depreciation-Buildings ($160,000−$125,000)	35,000
	Accumulated depreciation- Equipment ($240,000−$180,000)	60,000
	Cash		40,000
	Accounts Receivable		75,000
	Inventory		50,000
	Land		35,000
	Building		160,000
	Equipment		240,000
	(To record formation of subsidiary.)

Table (1)

Investment in Subsidiary M common stock is an asset and it is increased by $498,000. Therefore, Investment in Subsidiary M common stock account is debited with $498,000.

Provision for doubtful debts is a contra asset and it is decreased by $7,000. Therefore, Provision for doubtful debts account is debited with $7,000.

Accumulated depreciation-Building is a contra asset and it is decreased by $35,000. Therefore, Accumulated depreciation- Buildings account is debited with $35,000.

Accumulated depreciation-Equipment is a contra asset and it is decreased by $60,000. Therefore, Accumulated depreciation- Equipment account is debited with $60,000.

Cash is an asset and it is decreased by $40,000. Therefore, cash account is credited with $40,000.

Accounts Receivable is an asset and it is decreased by $75,000. Therefore, Accounts Receivable account is credited with $75,000.

Inventory is an asset and it is decreased by $50,000. Therefore, Inventory account is credited with $50,000.

Land is an asset and it is decreased by $35,000. Therefore, Land account is credited with $35,000.

Building is an asset and it is decreased by $160,000. Therefore, account is credited with $160,000.

Equipment is an asset and it is decreased by $240,000. Therefore, account is credited with $240,000.

b.

To determine

To prepare: Journal entries that subsidiary company would record.

Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).

b.

Expert Solution

Explanation of Solution

In the books of subsidiary company:

Record transfer of assets and liabilities:

Date	Account	Debit ($)	Credit($)
	Cash	40,000
	Accounts Receivable	75,000
	Inventory	50,000
	Land	35,000
	Buildings	160,000
	Equipment	240,000
	Provision for doubtful debts ($75,000−$68,000)		7,000
	Accumulated depreciation-Buildings ($160,000−$125,000)		35,000
	Accumulated depreciation- Equipment ($240,000−$180,000)		60,000
	Common Stock, $3 par		120,000
	Additional paid in capital (balancing figure)		378,000
	(To record receipt of assets and liabilities and issuance of stock.)

Table (2)

Cash is an asset and it is increased by $40,000. Therefore, cash account is debited with $40,000.

Accounts Receivable is an asset and it is increased by $75,000. Therefore, Accounts Receivable account is debited with $75,000.

Inventory is an asset and it is increased by $50,000. Therefore, Inventory account is debited with $50,000.

Land is an asset and it is increased by $35,000. Therefore, Land account is debited with $35,000.

Building is an asset and it is increased by $160,000. Therefore, Buildings account is debited with $160,000.

Equipment is an asset and it is increased by $240,000. Therefore, Equipment account is debited with $240,000.

Provision for doubtful debts is a contra asset and it is increased by $7,000. Therefore, Provision for doubtful debts account is credited with $7,000.

Accumulated depreciation-Building is a contra asset and it is increased by $35,000. Therefore, Accumulated depreciation- Buildings account is credited with $35,000.

Accumulated depreciation- Equipment is a contra asset and it is increased by $60,000. Therefore, Accumulated depreciation- Equipment account is credited with $60,000.

Common Stock is equity and it is increased by $120,000. Therefore, Common Stock account is credited with $120,000.

Additional paid in capital is equity and it is increased by $378,000. Therefore, Additional paid in capital account is credited with $378,000.

Answer 6

Chapter 1, Problem 1.6E

a.

To determine

To prepare: Journal entries that parent company would record in case of internal expansion.

Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).

a.

Expert Solution

Explanation of Solution

In the books of parent company:

Record transfer of assets and liabilities:

Date	Account	Debit ($)	Credit($)
	Investment in Subsidiary M common stock	498,000
	Provision for doubtful debts ($75,000−$68,000)	7,000
	Accumulated depreciation-Buildings ($160,000−$125,000)	35,000
	Accumulated depreciation- Equipment ($240,000−$180,000)	60,000
	Cash		40,000
	Accounts Receivable		75,000
	Inventory		50,000
	Land		35,000
	Building		160,000
	Equipment		240,000
	(To record formation of subsidiary.)

Table (1)

Investment in Subsidiary M common stock is an asset and it is increased by $498,000. Therefore, Investment in Subsidiary M common stock account is debited with $498,000.

Provision for doubtful debts is a contra asset and it is decreased by $7,000. Therefore, Provision for doubtful debts account is debited with $7,000.

Accumulated depreciation-Building is a contra asset and it is decreased by $35,000. Therefore, Accumulated depreciation- Buildings account is debited with $35,000.

Accumulated depreciation-Equipment is a contra asset and it is decreased by $60,000. Therefore, Accumulated depreciation- Equipment account is debited with $60,000.

Cash is an asset and it is decreased by $40,000. Therefore, cash account is credited with $40,000.

Accounts Receivable is an asset and it is decreased by $75,000. Therefore, Accounts Receivable account is credited with $75,000.

Inventory is an asset and it is decreased by $50,000. Therefore, Inventory account is credited with $50,000.

Land is an asset and it is decreased by $35,000. Therefore, Land account is credited with $35,000.

Building is an asset and it is decreased by $160,000. Therefore, account is credited with $160,000.

Equipment is an asset and it is decreased by $240,000. Therefore, account is credited with $240,000.

Answer 7

Chapter 1, Problem 1.6E

a.

To determine

To prepare: Journal entries that parent company would record in case of internal expansion.

Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).

Answer 8

a.

Expert Solution

Explanation of Solution

In the books of parent company:

Record transfer of assets and liabilities:

Date	Account	Debit ($)	Credit($)
	Investment in Subsidiary M common stock	498,000
	Provision for doubtful debts ($75,000−$68,000)	7,000
	Accumulated depreciation-Buildings ($160,000−$125,000)	35,000
	Accumulated depreciation- Equipment ($240,000−$180,000)	60,000
	Cash		40,000
	Accounts Receivable		75,000
	Inventory		50,000
	Land		35,000
	Building		160,000
	Equipment		240,000
	(To record formation of subsidiary.)

Table (1)

Investment in Subsidiary M common stock is an asset and it is increased by $498,000. Therefore, Investment in Subsidiary M common stock account is debited with $498,000.

Provision for doubtful debts is a contra asset and it is decreased by $7,000. Therefore, Provision for doubtful debts account is debited with $7,000.

Accumulated depreciation-Building is a contra asset and it is decreased by $35,000. Therefore, Accumulated depreciation- Buildings account is debited with $35,000.

Accumulated depreciation-Equipment is a contra asset and it is decreased by $60,000. Therefore, Accumulated depreciation- Equipment account is debited with $60,000.

Cash is an asset and it is decreased by $40,000. Therefore, cash account is credited with $40,000.

Accounts Receivable is an asset and it is decreased by $75,000. Therefore, Accounts Receivable account is credited with $75,000.

Inventory is an asset and it is decreased by $50,000. Therefore, Inventory account is credited with $50,000.

Land is an asset and it is decreased by $35,000. Therefore, Land account is credited with $35,000.

Building is an asset and it is decreased by $160,000. Therefore, account is credited with $160,000.

Equipment is an asset and it is decreased by $240,000. Therefore, account is credited with $240,000.

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

b.

To determine

To prepare: Journal entries that subsidiary company would record.

Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).

b.

Expert Solution

Explanation of Solution

In the books of subsidiary company:

Record transfer of assets and liabilities:

Date	Account	Debit ($)	Credit($)
	Cash	40,000
	Accounts Receivable	75,000
	Inventory	50,000
	Land	35,000
	Buildings	160,000
	Equipment	240,000
	Provision for doubtful debts ($75,000−$68,000)		7,000
	Accumulated depreciation-Buildings ($160,000−$125,000)		35,000
	Accumulated depreciation- Equipment ($240,000−$180,000)		60,000
	Common Stock, $3 par		120,000
	Additional paid in capital (balancing figure)		378,000
	(To record receipt of assets and liabilities and issuance of stock.)

Table (2)

Cash is an asset and it is increased by $40,000. Therefore, cash account is debited with $40,000.

Accounts Receivable is an asset and it is increased by $75,000. Therefore, Accounts Receivable account is debited with $75,000.

Inventory is an asset and it is increased by $50,000. Therefore, Inventory account is debited with $50,000.

Land is an asset and it is increased by $35,000. Therefore, Land account is debited with $35,000.

Building is an asset and it is increased by $160,000. Therefore, Buildings account is debited with $160,000.

Equipment is an asset and it is increased by $240,000. Therefore, Equipment account is debited with $240,000.

Provision for doubtful debts is a contra asset and it is increased by $7,000. Therefore, Provision for doubtful debts account is credited with $7,000.

Accumulated depreciation-Building is a contra asset and it is increased by $35,000. Therefore, Accumulated depreciation- Buildings account is credited with $35,000.

Accumulated depreciation- Equipment is a contra asset and it is increased by $60,000. Therefore, Accumulated depreciation- Equipment account is credited with $60,000.

Common Stock is equity and it is increased by $120,000. Therefore, Common Stock account is credited with $120,000.

Additional paid in capital is equity and it is increased by $378,000. Therefore, Additional paid in capital account is credited with $378,000.

Answer 13

b.

To determine

To prepare: Journal entries that subsidiary company would record.

Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).

Answer 14

b.

Expert Solution

Explanation of Solution

In the books of subsidiary company:

Record transfer of assets and liabilities:

Date	Account	Debit ($)	Credit($)
	Cash	40,000
	Accounts Receivable	75,000
	Inventory	50,000
	Land	35,000
	Buildings	160,000
	Equipment	240,000
	Provision for doubtful debts ($75,000−$68,000)		7,000
	Accumulated depreciation-Buildings ($160,000−$125,000)		35,000
	Accumulated depreciation- Equipment ($240,000−$180,000)		60,000
	Common Stock, $3 par		120,000
	Additional paid in capital (balancing figure)		378,000
	(To record receipt of assets and liabilities and issuance of stock.)

Table (2)

Cash is an asset and it is increased by $40,000. Therefore, cash account is debited with $40,000.

Accounts Receivable is an asset and it is increased by $75,000. Therefore, Accounts Receivable account is debited with $75,000.

Inventory is an asset and it is increased by $50,000. Therefore, Inventory account is debited with $50,000.

Land is an asset and it is increased by $35,000. Therefore, Land account is debited with $35,000.

Building is an asset and it is increased by $160,000. Therefore, Buildings account is debited with $160,000.

Equipment is an asset and it is increased by $240,000. Therefore, Equipment account is debited with $240,000.

Provision for doubtful debts is a contra asset and it is increased by $7,000. Therefore, Provision for doubtful debts account is credited with $7,000.

Accumulated depreciation-Building is a contra asset and it is increased by $35,000. Therefore, Accumulated depreciation- Buildings account is credited with $35,000.

Accumulated depreciation- Equipment is a contra asset and it is increased by $60,000. Therefore, Accumulated depreciation- Equipment account is credited with $60,000.