Question

Consolidated Workpaper: Two Cases LO 8 LO 9 The two following separate cases show the financial position of a parent company and its subsidiary company on November 30, 2019, just after the parent had purchased 90% of the subsidiary's stock: Case I Case II P Company S Company P Company S Company Current assets $ 880,000 $260,000 $ 780,000 $280,000 Investment in S Company 190,000 190,000 Long-term assets 1,400,000 400,000 1,200,000 400,000 Other assets _90,000 40,000__70,000__70,000 Total $2,560,000 $700,000 $2,240,000 $750,000 Current liabilities $ 640,000 $270,000 $ 700,000 $260,000 Long-term liabilities 850,000 290,000 920,000 270,000 Common stock 600,000 180,000 600,000 180,000 Retained earnings 470,000 _(40,000) 20,000 _40,000 Total $2,560,000 $700,000 $2,240,000 $750,000 Required: A. Prepare a November 30, 2019, consolidated balance sheet workpaper for each of the foregoing cases. In Case I, any difference between book value of equity and the value implied by the purchase price relates to subsidiary long-term assets. In Case II, assume that any excess of book value over the value implied by purchase price is due to overvalued long-term assets.

Answer 1

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Consolidated balace sheet November 30, 2019 Non-controlling interest Consolidated Balances Eleminations/Deductions Credit Case 1 Debit $260,000 $1,140,000 $880,000 $190,000 $190,000 $71,111 Current assets investments in Scompany Difference between Book value and Implied value Long term assets Other assets Total Assets $71,111 $71,111 $1,400,000 $90,000 $2,560,000 $400,000 $40,000 $700,000 $1,871,111 $130,000 $3,141,111 $640,000 $850,000 $270,000 $290,000 $910,000 $1,140,000 $600,000 $600,000 $180,000 $180,000 Current Liabilities Long term liabilities Common stock P.co. S.co. Retained earnings P.co. S.co. Non controlling interest Total Equity and liabilities $470,000 $470,000 $40,000 $40,000 $21,111 $322,222 $21,111 $21,111 $2,560,000 $700,000 $322,222 $3,141,111

Non-controlling interest Consolidated Balances Eleminations/Deductions Credit Case 2 Debit $280,000 $1,060,000 $780,000 $190,000 $8,889 Current assets investments in Scompany Difference between Book value and Implied value Long term assets Other assets Total Assets $190,000 $8,889 $8,889 $1,200,000 $70,000 $2,240,000 $400,000 $70,000 $750,000 $1,591,111 $140,000 $2,791,111 $700,000 $920,000 $260,000 $270,000 $960,000 $1,190,000 $600,000 $600,000 $180,000 $180,000 Current Liabilities Long term liabilities Common stock P.Co. S.co. Retained earnings P.co. S.co. Non controlling interest Total Equity and liabilities $20,000 $20,000 $40,000 $40,000 $21,111 $228,889 $21,111 $21,111 $2,240,000 $750,000 $228,889 $2,791,111

Statement of allocation of difference Parent company Share Non contolling Consolidated Value Purchase price Less: book value of acquisiton of equity Diffence between implied Value and The Book value Long term assets fair value 190000 198000 -8000 8000 21111 22000 -889 211111 220000 -8889 8889 889