Question
On December 31, Year 1, P Company purchased 80% of the outstanding shares of S Company for $6,960 cash. The statements of financial position of
On December 31, Year 1, P Company purchased 80% of the outstanding shares of S Company for $6,960 cash.
The statements of financial position of the two companies immediately after the acquisition transaction appear below.
P Company | S Company | |||||||
Carrying Amount | Carrying Amount | Fair Value | ||||||
Plant and equipment (net) | $ | 8,100 | $ | 6,900 | $ | 6,000 | ||
Investment in S Company | 6,960 | |||||||
Inventory | 5,160 | 3,750 | 3,900 | |||||
Accounts receivable | 3,150 | 1,800 | 1,800 | |||||
Cash | 1,500 | 1,050 | 1,050 | |||||
$ | 24,870 | $ | 13,500 | |||||
Ordinary shares | $ | 10,500 | $ | 3,000 | ||||
Retained earnings | 8,370 | 6,000 | ||||||
Long-term liabilities | 4,200 | 2,000 | 2,000 | |||||
Other current liabilities | 1,200 | 1,800 | 1,800 | |||||
Accounts payable | 600 | 700 | 700 | |||||
$ | 24,870 | $ | 13,500 | |||||
Required:
(a) Calculate consolidated goodwill at the date of acquisition under the proportionate consolidation method.
Consolidated goodwill $
(b) Prepare a consolidated statement of financial position in order of liquidity i.e starting with cash at the date of acquisition under each of the following:
(i) Identifiable net assets method
(ii) Fair value enterprise method
(c) Calculate the current ratio and debt-to-equity ratio for P Company under the identifiable net assets (INA) method and the fair value enterprise (FVE) method. (Round "Current ratio" answers to 2 decimal places and "Debt to equity ratio" answers to 4 decimal places.)
INA | FVE | ||
Current ratio | |||
Debt to equity ratio | |||
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