Question

Large Company owns 60 percent of the outstanding shares of Tiny. During the current year, Large sold inventory costing $90,000 to Tiny for $100,000. Although this inventory has now been sold to an outside party, Tiny has not yet paid Large. At the balance sheet date, Large has total current assets of $600,000 whereas Tiny has total current assets of $400,000. Assume that there were no allocations established at the date of acquisition. What is the total amount reported on the consolidated balance sheet for current assets?

A)$740,000

B)$780,000

C)$900,000

D)$940,000

Answer 1

A) The answer for the above question is Option C ($900,000)

During the process of consolidation, Unrealised gain or loss has to be eliminated. One more point to be noted is Large company , which is holding company records its subsidary as debtor for $ 100,000 and subsidary company records Large company as its creditor for $ 100,000.

In the Process of consolidation above said Credit balance and debit balance will be knocked off, since Holding and subsidary will be treated as single entity in the process of consolidation.

Hence, Amount of current Assets to be shown in consolidated Financial statments will be

Large Company : $600,000

Tiny Cmpany : $300,000 ($400,000-$100,000)

Total : $ 900,000