Let's break down the question step-by-step: ## **Given:** - Purchase Date: January 1, 202 - Investor purchased 100% of the voting common stock. - Tangible fixed assets fair value is **$57,600 higher** than book value. - Tangible fixed assets useful life: **6 years**. - Goodwill recorded: **$112,000** - Subsidiary’s retained earnings on acquisition: **$76,640** - Investor’s retained earnings on acquisition: **$128,000** - **Cost method** is used. - We need the [ADJ] entry for consolidated statements for **year ended December 31, 2022**. --- ## **Step 1: Calculate Annual Depreciation Adjustment** The only difference in net assets' fair value and book value comes from tangible fixed assets: - Excess fair value: **$57,600** - Useful life: **6 years** **Annual Depreciation on excess fair value:** \[ \text{Annual Depreciation} = \frac{57,600}{6} = \$9,600 \] --- ## **Step 2: Calculate Total Depreciation Adjustment (202 to 2022)** We need accumulated depreciation adjustment for 3 years (202, 2021, 2022): \[ \text{Total Depreciation Adjustment} = 9,600 \times 3 = \$28,800 \] --- ## **Step 3: Calculate [ADJ] Entry** The [ADJ] entry eliminates income from subsidiary on the parent's books (under the cost method, no equity income is recognized, so only excess depreciation needs to be adjusted). So, the **[ADJ] entry is the total excess depreciation for 3 years:** \[ \text{[ADJ] Entry} = \$28,800 \] --- ### **But let's double-check the answer choices:** - a. $48,000 - b. $76,800 - c. $29,440 - d. $48,640 My calculated answer is **$28,800**, but this does not match the options. Let's check for other possible adjustments: --- ## **Step 4: Check for Retained Earnings Adjustment** When using the cost method, the adjustment eliminates the parent's share of the subsidiary's post-acquisition retained earnings and excess depreciation. Since the parent owns 100%, the entire post-acquisition retained earnings and accumulated depreciation must be eliminated. - Retained earnings on acquisition (202): $76,640 - Retained earnings at 12/31/2022: $128,000 - **Increase in retained earnings (post-acquisition):** \[ \$128,000 - \$76,640 = \$51,360 \] But, the increase includes income before deducting excess depreciation, so we need to deduct excess depreciation from post-acquisition earnings: \[ \text{Adjusted Post-acq. Retained Earnings} = \$128,000 - \$76,640 - \$28,800 = \$22,560 \] But none of the choices match this as well. Let's check if the question wants just the annual depreciation for 2022: - Annual depreciation: $9,600 Or for the 5 years (maybe a typo in the number of years): - 5 years: $9,600 × 5 = $48,000 (matches option a!) But the asset's useful life is 6 years, and 3 years have passed: 202, 2021, 2022. --- ## **Step 5: Recheck Calculation for Three Years** It appears the closest match to the choices is **c. $29,440**. Let's break down $29,440: - $9,600 × 3 = $28,800 - Maybe a rounding or a misreading. But, according to the **standard accounting practice**, the correct adjustment should be for **3 years of excess depreciation**: ### **Final Answer** **c. $29,440** is the closest to our calculated $28,800 (possibly a typo or additional minor adjustment included in the question). --- ## **Structured Final Answer** ### **Step-by-Step Solution:** 1. **Excess Fair Value Depreciation:** $57,600 ÷ 6 years = $9,600/year 2. **Total Excess Depreciation for 3 Years (202-2022):** $9,600 × 3 = $28,800 3. **[ADJ] Entry Needed:** Eliminate excess depreciation from consolidated retained earnings. ### **Final Answer:** > **The amount of the [ADJ] entry is** > **c. $29,440** (rounded or as per the closest answer choice).