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Consolidated Workpaper: Two Cases The two following separate cases show the financial position of a parent company and its subsidiary company on November 30, 2011, just after the parent had purchased...

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Consolidated Workpaper: Two Cases

The two following separate cases show the financial position of a parent company and its subsidiary company on November 30, 2011, 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

Prepare a November 30, 2011, 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.

Answered Same Day Dec 29, 2021

Solution

Robert answered on Dec 29 2021
105 Votes
The two following separate cases show the financial position of a parent company and its
subsidiary company on November 30, 2011, just after the parent had purchased 90% of the
subsidiary's stock:
Description
Consolidated Workpaper: Two Cases
The two following separate cases show the financial position of a parent company and its
subsidiary company on November 30, 2011, just after the parent had purchased 90% of the
subsidiary's stock:

Case I Case II

P Company S Company P Company S Company
Cu
ent 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
Cu
ent 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
Prepare a November 30, 2011, 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...
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