Reference no: EM132609677

Question - Through the payment of $15,580,000 in cash, Drexel Company acquires voting control over Young Company. This price is paid for 70 percent of the subsidiary's 200,000 outstanding common shares ($40 par value) as well as all 19,000 shares of 8 percent, cumulative, $100 par value preferred stock. Of the total payment, $3.4 million is attributed to the fully participating preferred stock with the remainder paid for the common. This acquisition is carried out on January 1, 2018, when Young reports retained earnings of $10.3 million and a total book value of $20.2 million. The acquisition-date fair value of the noncontrolling interest in Young's common stock was $5,220,000. On this same date, a building owned by Young (with a 5-year remaining life) is undervalued in the financial records by $260,000, while equipment with a 10-year remaining life is overvalued by $100,000. Any further excess acquisition-date fair value is assigned to a brand name with a 25-year remaining life.

During 2018, Young reports net income of $930,000 while declaring $430,000 in cash dividends. Drexel uses the initial value method to account for both of these investments.

Complete appropriate consolidation entries for 2018.

1. Prepare Entry S and A combined to eliminate the subsidiary stockholders' equity, record excess acquisition-date fair values, and to record the outside ownership of the subsidiary's preferred stock at acquisition-date fair value.

2. Prepare Entry I1 to offset the intra-entity preferred stock dividends recognized as income by the parent.

3. Prepare Entry I2 to eliminate the intra-entity dividends on common stock.

4. Prepare Entry E to record the current year amortization of specific accounts recognized within the acquisition price of preferred stock.