P Company acquires 80% of the common stock of S Company for an agreed-upon price of $640,000.

Question:

P Company acquires 80% of the common stock of S Company for an agreed-upon price of $640,000. The fair value of the NCI is $160,000. The book value of the net assets is $600,000, which includes $50,000 of subsidiary cash equivalents. Any excess is attributable to goodwill. (A D&D schedule is suggested to properly calculate the NCI.) How will this transaction affect the cash flow statement of the consolidated firm in the period of the purchase, if:

a. P Company pays $640,000 cash to purchase the stock?

b. P Company pays $400,000 cash and signs 5-year notes for $240,000? 80% of the Company S shareholders receive notes.

c. P Company exchanges only common stock with 80% of the shareholders of Company S?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...