Assume that Big Company decides to acquire 80% Little Company for $500,000. Which accounting method is most
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Assume that Big Company decides to acquire 80% Little Company for $500,000. Which accounting method is most appropriate for representing an investment of this type?
Big Company Balance Sheet | |
Assets, Liabilities & Equities | Book Value |
Cash | $2,100,000 |
AR | $10,000 |
Inventory | $200,000 |
Land | $40,000 |
PP&E | $400,000 |
Accumulated Depreciation | -$150,000 |
Patent | $0 |
Total Assets | $2,600,000 |
AP | $100,000 |
Common Stock ($10 par) | $450,000 |
Additional Paid In Capital | $600,000 |
Retained Earnings | $1,450,000 |
Total Liabilities & Equity | $2,600,000 |
Little Company Balance Sheet | |
Assets, Liabilities & Equities | Book Value |
Cash | $35,000 |
AR | $10,000 |
Inventory | $65,000 |
Land | $40,000 |
PP&E | $400,000 |
Accumulated Depreciation | -$150,000 |
Patent | $0 |
Total Assets | $400,000 |
AP | $100,000 |
Common Stock | $100,000 |
Additional Paid In Capital | $50,000 |
Retained Earnings | $150,000 |
Total Liabilities & Equity | $400,000 |
Assume that Book Value = Fair Value |
Related Book For
Introduction to Management Accounting
ISBN: 978-0133058789
16th edition
Authors: Charles Horngren, Gary Sundem, Jeff Schatzberg, Dave Burgsta
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