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Basic information for this quiz Parent Company purchased 100 percent of Subsidiary Corporation's stock on January 1, X1, for $250,000 cash. At date of acquisition,
Basic information for this quiz Parent Company purchased 100 percent of Subsidiary Corporation's stock on January 1, X1, for $250,000 cash. At date of acquisition, Subsidiary's Share Capital and RE amounted to $50,000 and $10,000 respectively. Summarized statements of financial position of the companies on December 31, X3, are presented below. Parent Subsidiary $25,000 Assets Cash Investment Other assets Total assets $100,000 250,000 225,000 $575,000 125,000 $150,000 Liabilities and equity Current liabilities $25,000 $35,000 Share capital Retained earnings Total liabilities and equity 150,000 400,000 $575,000 50,000 65,000 $150,000 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 10 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 Subsidiary's sales were to Parent. Of these sales, $20,000 remains in the December 31, X3, inventories of Parent. The December 31, X2, inventories of Parent contained $10,000 of merchandise purchased from Subsidiary. Subsidiary's sales are priced to provide it with a gross profit of 10% (gross profit on sales). Continue the case of Parent Company in the subsequent year (X4). Assume that there are no intercompany transactions, no dividends, and no Goodwill impairment in X4. Profits for X4 were $200,000 (Parent) and $100,000 (Parent). What amount would Parent report as Retained Earnings in its consolidated F/S for X4? $755,000 None of these answers $715,000 $745,000 $725,000
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