Assume that Big Company decides to acquire 80% Little Company for $500,000. Which accounting method is most appropriate for representing an investment of this type?

 

Big Company Balance Sheet
Assets, Liabilities & Equities	Book Value
Cash	$2,100,000
AR	$10,000
Inventory	$200,000
Land	$40,000
PP&E	$400,000
Accumulated Depreciation	-$150,000
Patent	$0
Total Assets	$2,600,000
AP	$100,000
Common Stock ($10 par)	$450,000
Additional Paid In Capital	$600,000
Retained Earnings	$1,450,000
Total Liabilities & Equity	$2,600,000
Little Company Balance Sheet
Assets, Liabilities & Equities	Book Value
Cash	$35,000
AR	$10,000
Inventory	$65,000
Land	$40,000
PP&E	$400,000
Accumulated Depreciation	-$150,000
Patent	$0
Total Assets	$400,000
AP	$100,000
Common Stock	$100,000
Additional Paid In Capital	$50,000
Retained Earnings	$150,000
Total Liabilities & Equity	$400,000
Assume that Book Value = Fair Value