The following balance sheets have been prepared on December 31, 2020 for Pat Corp. and Rat Inc.
Question:
The following balance sheets have been prepared on December 31, 2020 for Pat Corp. and Rat Inc.
Pat | Rat | |
Cash | $30,000 | $20,000 |
Inventory | $70,000 | $30,000 |
Accounts Receivable | $180,000 | $70,000 |
Investment in Rat | $200,000 | |
Fixed Assets | $500,000 | $90,000 |
Accumulated Depreciation | ($280,000) | ($30,000) |
Total Assets | $700,000 | $180,000 |
Current Liabilities | $120,000 | $60,000 |
Long-Term Debt | $400,000 | $20,000 |
Common Shares | $90,000 | $40,000 |
Retained Earnings | $90,000 | $60,000 |
Liabilities and Equity | $700,000 | $180,000 |
Balance Sheets
Additional Information:
Pat uses the cost method to account for its 50% interest in Rat, which it acquired on January 1, 2017. On that date, Rat's retained earnings were $20,000. The acquisition differential was fully amortized by the end of 2020.
Pat sold Land to Rat during 2019 and recorded a $15,000 gain on the sale. Pat is still using this Land. Pat's December 31, 2020 inventory contained a profit of $10,000 recorded by Rat.
Rat borrowed $20,000 from Pat during 2020 interest-free. Rat has not yet repaid any of its debt to Pat.
Both companies are subject to a tax rate of 20%.
Prepare a Consolidated Balance Sheet for Pat on December 31, 2020 assuming that Pat's investment in Rat is a control investment.
Modern Advanced Accounting in Canada
ISBN: 978-1259087554
8th edition
Authors: Hilton Murray, Herauf Darrell