Homework Answers
Consolidation is a process of presentation of two companies financial statements as a single company (parent company) financial statement.
During this process, ee do elimination of certain accounts and addition of other accounts
(a) Inventory
This is just the addition of both companies inventory
Inventory = 440,000 + 750,000 = 1,190,000
(b) Equity investment
This in parent company represents the consideration paid for acquiring subsidiary company shares. As 100% of stock of subsidiary is acquired, we do not show any amount as equity investment
Equity investment = 0
(c) Property, plant and equipment
= 3,190,000 + 1,205,000 + 225,000
= 4,620,000
(d) Goodwill
Goodwill is to be recognised
Total Net Worth of Subsidiary = Common stock + Retained earnings (pre acquisition) + additional paid in Capital
= 150,000 + 300,000 + 1,519,600
= 1,969,600
Value of Subsidiary = Net worth + undervaluation + new intangibles
= 1,519,600 + 225,000 + 175,000 + 60,000
= 2,429,600
Compare this with equity investment which is 2,500,000
Tye difference is Goodwill
So Goodwill = 70,400
(e) Common Stock = 200,000
Only parent companies common stock is considered
(f) Additional paid in capital = 5,000,000
Only parent companies balance is considered
(g) Retained Earnings = 1,685,000
Only parent companies balance is considered
(h) Intangible assets
Trademark = 175,000
Customer list = 60,000
Total Intangible assets = 235,000
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