A summary of the 2014 balance sheet of Alsop Ltd., follows: On January 1, 2014, Alsop acquired
Question:
A summary of the 2014 balance sheet of Alsop Ltd., follows:
On January 1, 2014, Alsop acquired 100 percent of the outstanding common stock of Martin Monthly for $62,000 cash. At the time of the acquisition, the fair market values of the assets and liabilities of Martin were $86,000 and $64,000, respectively. During 2014, Martin operated as a subsidiary of Alsop; it recognized $15,000 of net income and paid a $10,000 dividend.
REQUIRED:
a. Account for the acquisition as a purchase. Provide the journal entry to record the acquisition, and prepare Alsop’s consolidated balance sheet as of January 1, 2014.
b. Account for the acquisition using the equity method. Provide the journal entry to record the acquisition, and prepare Alsop’s balance sheet as of January 1, 2014.
c. Compute the debt/equity ratios produced by the two methods of accounting for this investment. Explain why Alsop’s management might wish to use the equity method instead of preparing consolidated financialstatements.
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Step by Step Answer:
a Investment in Subsidiary A 62000 Cash A 62000 Purchased Martin Monthly Alsop Ltd Consolidated Bala...View the full answer
