Question

QUESTION 27

1. On Jan. 1 Year 1, P spent 250 million to buy 100% of S. At that date, some key numbers (in millions) are:

                           S common stock         15

                           S paid-in capital          20

                           S retained earnings     80

                                       Total book equity = 115

   All of the assets and liabilities of S had book values = fair values, except:

   Buildings had fair value 20 higher than book value. The remaining life is 10 years.

   Inventory had a fair value 10 lower than book value. The inventory was sold in Year 1.

   At the end of year 1, The books of the two companies reflect the following:

   Figures in millions			P	S
   			Book value	Book value
   Cash			300	63
   Receivables (25 receivable by P from S)			105	12
   Inventory			20	13
   Land			30	10
   Buildings (net of deprec.)			300	100
   Investment in S			269
   Intangible assets			26
   Goodwill			0
   	total assets		1050	198
   Accounts payable (25 payable by S to P)			26	38
   Accrued liabilities			29	10
   long-term bonds			340	30
   	total liabilities		395	78
   Common stock of P, at par			25
   Common stock of S, at par				15
   Additional paid-in capital			85	20
   retained earnings (ending)			545	85
   	total equity		655	120
   Total liabilities + equity			1050	198
   Revenues			284	130
   Expenses			203	115
   Income from subsidiary			23
   Dividends (S paid 10 to P)			14	10
   Beginning Retained earnings			455	80
   Ending retained earnings			545	85

   What should be the balance in consolidation for accounts payable?

use the same facts as the prior questions, what is the correct Year one consolidated net income?

use the above facts. What is the correct consolidated dividends for Year 1?

Use the above facts. What is the correct consolidated Year 1 balance for Investment in S?

Answer 1

Consolidated Accounts Payable= 26+(38-25)= 39

Consolidated Net Income =90-2( Depriciation on Additinal Building Value )- 10( Inventory Loss )ie = 90-2-10= 78+5=83.

Consolidated Divident= 14 ( 10 Paid By S, adjusted in income from subsidiary and added to Reatined Earnings )

Investment in S= 269-12( Consolidated Net profit Changes 95-83= 12) Less 18 ( addition on Biulding Revalued ) Less- Common Stock in S= 15 Add+ Income from Subsidiary=10-Paid up Capital In S=20 = ( 269-12-18-15+10-20)= 214