Question

Jordan, Inc., holds 75 percent of the outstanding stock of Paxson Corporation. Paxson currently owes Jordan $400,000 for inventory acquired over the past few months. In preparing consolidated financial statements, what amount of this debt should be eliminated

Answer 1

$300,000

Step-by-step explanation:

When preparing consolidated financial statements, the common items between the parent and the subsidiary have to be eliminated.

Jordan, Inc is the parent since its exercising control of Paxson Corporation through its 75% voting rights.

The elimination journal will be as follows :

Accounts Payables - Paxson $300,000 (debit)

Accounts Receivables - Jordan, Inc $ 300,000 (credit)

Conclusion :

Therefore, $300,000 f this debt should be eliminated.