The separate condensed balance sheets and income statements of Purl Corporation and its wholly owned subsidiary, Scott Corporation, are as follows:

- On January 1, 20X0, Purl purchased for \(\$ 360,000\) all of Scott's \(\$ 10\) par, voting common stock. On January 1, 20X0, the fair value of Scott's assets and liabilities equaled their carrying amount of \(\$ 410,000\) and \(\$ 160,000\), respectively, except that the fair values of certain items identifiable in Scott's inventory were \(\$ 10,000\) more than their carrying amounts and Scott held unrecorded copyrights with a fair value of \(\$ 100,000\) and a remaining useful life of 10 years. The inventory items were still on hand at December 31, 20X0.
- During 20X0, Purl and Scott paid cash dividends of \(\$ 100,000\) and \(\$ 30,000\), respectively. For tax purposes, Purl receives the 100 percent exclusion for dividends received from Scott.
- There were no intercompany transactions, except for Purl's receipt of dividends from Scott and Purl's recording of its share of Scott's earnings. Both Purl and Scott paid income taxes at the rate of 30 percent.
In the December \(31,20 \mathrm{X} 0\), consolidated financial statements of Purl and its subsidiary:
1. Total current assets should be:

a. \(\$ 455,000\).

b. \(\$ 445,000\).

c. \(\$ 310,000\).

d. \(\$ 135,000\).
2. Total assets should be:

a. \(\$ 1,740,000\).

b. \(\$ 1,450,000\).

c. \(\$ 1,350,000\).

d. \(\$ 1,325,000\).
3. Total retained earnings should be:

a. \(\$ 985,000\).

b. \(\$ 825,000\).

c. \(\$ 795,000\).

d. \(\$ 755,000\).
4. Net income should be:

a. \(\$ 270,000\).

b. \(\$ 200,000\).

c. \(\$ 190,000\).

d. \(\$ 170,000\).
5. Copyright amortization expense should be:

a. \(\$ 20,000\).

b. \(\$ 10,000\).

c. \(\$ 6,000\).

d. \(\$ 0\).

Transcribed Image Text:

Current Assets Cash Accounts Receivable (net) Inventories Total Current Assets Property, Plant & Equipment (net) Investment in Scott (equity method) Total Assets Current Liabilities Accounts Payable Accrued Liabilities Total Current Liabilities Stockholders' Equity Common Stock ($10 par) Additional Paid-In Capital Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity Balance Sheets December 31, 20X0 Purl $ 80.000 140,000 90,000 $ 310,000 625,000 390,000 $1.325.000 $ 160,000 110,000 Scott $ 60,000 25,000 50,000 $135,000 280,000 $415,000 $ 95,000 30,000 $125,000 $ 270,000 $300,000 $ 50,000 10,000 755,000 230,000 1,055,000 290,000 $1,325,000 $415,000