Question

On January 1, 2011 Big Company purchased 90% of Small company for $2,700,000. On January 1,...

On January 1, 2011 Big Company purchased 90% of Small company for $2,700,000.

On January 1, Small had the following balance sheet

Assets:

Cash 500,000

Inventory 500,000

Equipment 2,000,000

a/d equipment 1,000,000

liabilities:

accounts payable 200,000

equity:

common stock 1,000,000

retained earnings 800,000

The equipment with a 10 year life (no salvage) has a fair market value of $1,600,000

On January 1, 2011 (just before the purchase) Big had the following balance sheet:

Cash $4,000,000

Equipment $5,000,000

a/d equipment $3,000,000

land $3,000,000

a/p 1,000,000

common stock 1,000,000

retained earnings 7,000,000

REQUIRED: PREPARE THE CONSOLIDATED BALANCE SHEET ON JANUARY 2, 2011

Business   Accounting   
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Answer #1
Cost of control $
Amount paid for shares 2700000
(-) 90 % of share capital 900000
(-) 90 % of retained earnings 720000
Goodwill 1080000
(-) Profit on revaluation of machinery 600000
Adjusted Goodwill 480000
Minority Interest
Paid up value 100000
(+) Retained earnngs 80000
Total 180000
Consolidated Balance Sheet as on 02.01.2011
Liabilities $ Assets $
Equity Share Capital 1000000 Fixed Assets
Retained Earnings 7000000 Goodwill 480000
Current Liabilities 1200000 Land 3000000
Minority Interest 180000 Equipment less accumulated depreciation 3600000
Current Assets
Cash 1800000
Inventory 500000
9380000 9380000
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