Assume a parent company acquires 80% of the outstanding voting common stock of a subsidiary on January
Question:
Assume a parent company acquires 80% of the outstanding voting common stock of a subsidiary on January 1, 2018. One the acquisition date, the identifiable net assets of the subsidiary had fair value that approximately their recorded book value except for a paten, which had a fair value of $200,000 and not recorded book value. On the date of acquisition, the patent had five years of remaining useful life and the parent company amortizes its intangible assets using straight line amortization. During the year ended December 31, 2019, the subsidiary recorded sales to the parent in the amount of $240,000. On these sales, the subsidiary recorded pre-consolidation gross profits equal to 25%. Approximately 30% of this merchandise remains in the parent’s inventory at December 31, 2019. The following summarized pre-consolidation financial statements are for the parent and the subsidiary for the year ended December 31, 2019
Income Statement | Investor | Investee |
Revenue | 4800000 | 800000 |
Income from Investee | 209600 | 00 |
Expenses | -3200000 | -480000 |
Net Income | 1809600 | 320000 |
Statement of Retained Earnings | ||
Beginning Retained Earnings | 1488000 | 80000 |
Net Income | 1809600 | 320000 |
Dividends declared | -128000 | -80000 |
Ending Retained Earnings | 3169600 | 320000 |
Balance Sheet | ||
Current Assets | 1600000 | 200000 |
Equity Investment | 465600 | 00 |
Non Current Assets | 8000000 | 600000 |
Total Assets | 10065600 | 800000 |
Liabilities | 5280000 | 320000 |
Common Stock & APIC | 1800000 | 160000 |
Retained Earnings | 3169600 | 320000 |
Intercompany Inventory Transaction, What are the consolidated Revenues?
Advanced Accounting
ISBN: 978-0134472140
13th edition
Authors: Floyd A. Beams, Joseph H. Anthony, Bruce Bettinghaus, Kenneth Smith