Parent company purchased 100 percent of subsidiary corporation's stock on january 1, x1, for $300,000 cash. At
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Question:
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.
Assets | Parent | Subsidiary |
Cash | 100,000 | 25,000 |
Investments | 300,000 | |
Other assets | 165,000 | 125,000 |
Total assets | $575,000 | $150,000 |
Liabilities and equity | Parent | Subsidiary |
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 |
Summarized statements of financial position of the companies on Dec 31,x3, are presented below
- 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 the subsidiary's sales were to the parent. Of these sales, $10,000 remained in the December 31, X3, inventories of the 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 easrning of parent for the year ended Decmeber 31, X3?
the answer is $90,000 but how do I get that?
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