In a cash transaction, Root Company purchased 70 percent of the outstanding stock of Mandela Company for $593,600 cash on June 30, 2011. Immediately after the acquisition, the separate balance sheets of the companies appeared as follows.

Additional information: (a) Mandela’s other assets represent a long-term investment in Root’s long-term debt. The debt was purchased for an amount equal to Root’s carrying value of the debt. (b) Root owes Mandela $80,000 for services rendered.

REQUIRED

1. Prepare a work sheet for a consolidated balance sheet as of the acquisition date.

2. If you were reading Root’s consolidated balance sheet, what account would indicate that Root owned less than 100 percent of Mandela, and where would you find it on the balance sheet?

Transcribed Image Text:

Root Company Mandela Company Assets $ 48,000 240,000 520,000 Cash Accounts reccivable Inventory Investment in Mandela Company Property, plant, and equipment (net) Other assets Total asscts S 320,000 520,000 800,000 593,600 1,200,000 40,000 S3,473,600 880,000 160,000 S1,848,000 Liabilities and Stockholders' Equity Accounts payable Long-term debt Common stock, S10 par valuc Retained carnings Total liabilities and stockholders' cquity 640,000 800,000 1,600,000 433,600 S3,473,600 $ 400,000 600,000 800,000 48,000 S1,848,000