On January 1, 2011 Big Company purchased 90% of Small company for $2,700,000. On
ID: 2533199 • Letter: O
Question
On January 1, 2011 Big Company purchased 90% of Small company for $2,700,000.
On January 1, Small had the following balance sheet
Assets:
Cash 500,000
Inventory 500,000
Equipment 2,000,000
a/d equipment 1,000,000
liabilities:
accounts payable 200,000
equity:
common stock 1,000,000
retained earnings 800,000
The equipment with a 10 year life (no salvage) has a fair market value of $1,600,000
On January 1, 2011 (just before the purchase) Big had the following balance sheet:
Cash $4,000,000
Equipment $5,000,000
a/d equipment $3,000,000
land $3,000,000
a/p 1,000,000
common stock 1,000,000
retained earnings 7,000,000
REQUIRED: PREPARE THE CONSOLIDATED BALANCE SHEET ON JANUARY 2, 2011
Explanation / Answer
Cost of control $ Amount paid for shares 2700000 (-) 90 % of share capital 900000 (-) 90 % of retained earnings 720000 Goodwill 1080000 (-) Profit on revaluation of machinery 600000 Adjusted Goodwill 480000 Minority Interest Paid up value 100000 (+) Retained earnngs 80000 Total 180000 Consolidated Balance Sheet as on 02.01.2011 Liabilities $ Assets $ Equity Share Capital 1000000 Fixed Assets Retained Earnings 7000000 Goodwill 480000 Current Liabilities 1200000 Land 3000000 Minority Interest 180000 Equipment less accumulated depreciation 3600000 Current Assets Cash 1800000 Inventory 500000 9380000 9380000
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