Basic information for this quiz

Parent Company purchased 100 percent of Subsidiary Corporation's stock on January 1, X1, for $300,000 cash. At date of acquisition, Subsidiary's Share Capital and RE amounted to $50,000 and $10,000 respectively.

Summarized statements of financial position of the companies on December 31, X3, are presented below.

	Parent	Subsidiary
Assets
Cash Investment	$100,000 300,000	$25,000
Other assets	175,000	125,000
Total assets	$575,000	$150,000
Liabilities and equity
Current liabilities	$25,000	$35,000
Share capital	150,000	50,000
Retained earnings	400,000	65,000
Total liabilities and equity	$575,000	$150,000

• Fair values of Subsidiary were equal to book values except for buildings, which had a fair value of $100,000 in excess of net book value (remaining useful life of 20 years). Goodwill has not been impaired since acquisition.
• No dividends were declared in X3.
• Profit for the year X3 for Parent and Subsidiary amounts to $90,000 and $35,000 respectively.
• During X3, $50,000 of Subsidiary's sales were to Parent. Of these sales, $10,000 remains in the December 31, X3, inventories of Parent. The December 31, X2, inventories of Parent contained $5,000 of merchandise purchased from Subsidiary. Subsidiary's sales are priced to provide it with a gross profit of 10% (gross profit on sales).

What would be the Adjusted earnings of Parent for the year ended December 31, X3?

Answer rating: 100% (QA)

To calculate the adjusted earnings of the Parent for the year ended December 31 X3 we need to make s... View the full answer