Case Study:

Consolidated Balance Sheet At Date Of Purchase

This case study will provide a thorough illustration as to the concepts of consolidations on the date of acquisition. On this date, an ensuing Consolidated Balance Sheet is created, whereby the acquiring and the acquired companies are combined as a single entity. Interestingly, there are options as to the consolidation basis which may be utilized, which also includes the push-down method of accounting. The pushdown method was illustrated in a previous case study and it is highly recommended that the reader resort to this, which can be found in Harris & Dilling (2015). An overview of this critical topic will be discussed, followed by a comprehensive illustration demonstrating the results of consolidated results as of the date of acquisition. Note that the resulting Balance Sheet will be the same with the push-down accounting result. This case study is recommended as a group project for an Advanced Accounting course as well as for a graduate Financial Statement Analysis class.

Facts: On December 31, 2011, PA. Inc. purchased 95 percent of Sub. Inc. for $120,000 cash. The Balance Sheet of each corporation just prior to the acquisition is presented below. Additionally, book value and fair value for all of Subs assets and liabilities are equal, with the exception of Property, Plant and Equipment, whose fair value is $47,000.

Balance Sheet	PA Inc.	SUB Inc.
Assets	12/31/2011	12/31/2011
Currents Assets
Cash	$170,000	$21,000
Accounts Receivables	60,000	45,000
Inventory	50,000	45,000
Total Current Assets	$280,000	$111,000
Fixed Assets
Property, plant, and Equipment (Net of accumulated Depreciation	265,000	42,000
Goodwill
Total Assets	545,000	153,000
	PA Inc.	SUB Inc.
Liabilities
Current Liabilities
Accounts Payable	70,000	30,000
Accruals Payable	20,000	15,000
Total Current Liabilites	90,000	45,000
Non-Current liabilities
Bonds Payable	180,000
Total Liabilities	270,000	45,000
Shareholders' Equity
Non Controlling Interest (Share of Subsidiary)	$	$
Common Stock (5$ Par)	100,000	55,000
Paid in Capital	20,000	8,000
Retained Earnings	155,000	45,000
Total Shareholders' Equity	275,000	108,000
Total Liabilities and Shareholder's Equity	545,000	153,000

Refer to the illustrated balance sheet listed above for PA Inc. and SUB Inc. to answer the following question:

1. Define both companies total assets by drawing a comparative table by reflecting on each category? What can you conclude for such a virtual company? (10 marks)